The court denied the insurer’s motion to dismiss the insured’s breach of contract claim, but granted the motion to dismiss without prejudice the bad faith claim. Terrazas v. State Farm Fire & Cas. Co., 2025 U.S. Dist. LEXIS 173920 (D. Colo. Sept 5, 2025).

The plaintiff, Alejandro Garcia-Terrazas, had a policy issued by State Farm. The policy covered the abrupt and accidental discharge or overflow of water.

Terrazas noticed a water discharge or overflow in the kitchen. The water caused damage to the floors, cabinets, and other items in the kitchen. A claim was filed with State Farm. State Farm investigated but refused to pay the full value of the claim.

Terrazas hired a public adjuster who prepared a detailed report and estimate regarding the damage. The report was submitted to State Farm. Terrazas also hired a professional mitigation company to mitigate the damage. The mitigation company provided an invoice, report and photographs of the damage to State Farm. Despite the two reports, State Farm refused to reconsider its initial coverage decision.

Terrazas filed suit for breach of contract and bad faith. State Farm moved to dismiss because the complaint allegations were conclusory and inadequate. The complaint contained no allegations that Terrazas performed under the contract. There were no allegations addressing which terms or conditions were satisfied by Mr. Terrazas. The complaint, however, alleged that the policy was “in full force and effect” on the date that he discovered the water damage to the property and that he paid premiums on the policy. These allegations were sufficient to plausibly allege that Mr. Terrazas performed under the contract.

Mr. Terrazas also adequately pled the policy provisions that State Farm allegedly breached. The complaint alleged that the kitchen was damaged by an abrupt and accidental discharge or overflow of water, an event covered by the policy.

State Farm’s argument that there may be relevant policy exclusions that provided a legal defense to the claim was premature. It was not Mr. Terrazas’s responsibility to identify every possible policy exclusion and then plead facts sufficient to demonstrate that the exclusion was inapplicable to the claim.

Therefore, the court denied the motion to dismiss to the extent that it sought to dismiss the breach of contract claim.

The court, however, granted the motion to dismiss the bad faith claim without prejudice. Although the complaint alleged that State Farm undertook an “inadequate, unreasonable, and improper investigation” of his claim, the complaint did not identify what was improper about the investigation. The complaint alleged that State Farm “investigated the claim, and despite having received, processed, and investigated the claim, Defendant has refused, and continues to refuse, to cover the claim and/or render full payment to Plaintiff for the Claim.” This allegation acknowledged that State Farm investigated the claim but asserted that State Farm made an incorrect coverage decision. This allegation did not plausibly allege that the investigation was inadequate.

It was also impossible for the court to determine whether Mr. Terrazas plausibly alleged that State Farm acted “without a reasonable basis” when the complaint did not include the basis for State Farm’s denial. Therefore, the bad faith claim was dismissed without prejudice.