August 16, 2017

Colorado Court of Appeals: Insurer Required to Pay Portion of Costs Regardless of Whether Coverage Existed

The Colorado Court of Appeals issued its opinion in Mt. Hawley Insurance Co. v. Casson Duncan Construction, Inc. on Thursday, November 3, 2016.

Insurance—Partial Summary Judgment.

A homeowners association (HOA) sued developer Mountain View Homes III (MVH III) and general contractor Casson Duncan Construction Inc. (Casson Duncan) on defective construction claims. In arbitration, MVH III’s insurer, Mt. Hawley Insurance Co. (Mt. Hawley), defended under a reservation of rights. The arbitration resulted in awards of damages and taxable costs to the HOA. Casson Duncan paid the costs award, for which it and MVH III were jointly liable, and thereafter sought contribution from MVH III and Mt. Hawley.

Mt. Hawley initiated this action against MVH III, the HOA, and Casson Duncan, requesting a declaration that there was no coverage under its commercial general liability policies with MVH III for either the costs or damages awarded in the arbitration. Casson Duncan filed a counterclaim for declaratory and monetary relief against Mt. Hawley for payment of MVH III’s portion of the costs award. The parties filed cross-motions for summary judgment on coverage issues. The district court denied summary judgment on all but one issue: it determined that Mt. Hawley was, as a matter of law, responsible for paying MVH III’s portion of the cost award, regardless of whether it was also responsible for paying its portion of the damages award. This partial summary judgment ruling was certified as “final” for purposes of permitting appellate review.

On appeal, Mt. Hawley argued that the district court erred in granting partial summary judgment because Mt. Hawley’s responsibility for paying costs was inextricably linked to the question of whether the policies provided MVH III with coverage for the HOA’s claims, and because the coverage issues had not been determined, the costs issues could not be determined either. The court of appeals interpreted the policies to decide the issue. The insurance policies had standard “coverages” and “exclusions” sections and provided that the insurance company would pay “[a]ll costs taxed against the insured in the ‘suit,’” where “suit” clearly covered the arbitration proceeding. The obligation to pay costs was not linked to coverage but simply to the defense of the case. Because Mt. Hawley conducted MVH III’s defense in the arbitration proceedings, it was obligated to pay MVH III’s portion of taxable costs.

Mt. Hawley also argued that its reservation of rights letter superseded the policies’ costs provisions. A reservation of rights does not destroy the insured’s rights or create new rights in the insurer. The Colorado case law exception to this principle applies to defense costs, and defense costs are different from costs taxed against an insured.

Lastly, Mt. Hawley asserted that the court’s interpretation of the policies leads to absurd results. Mt. Hawley agreed in its policies to pay all costs taxed against MVH III in suits in which it defended MVH III. If Mt. Hawley wanted to avoid the result here, it could have changed the language in its policy regarding coverage of such costs.

The judgment was affirmed.

Summary provided courtesy of The Colorado Lawyer.

Colorado Supreme Court: Excusing Noncompliance with Date Certain Coverage Period Would Fundamentally Alter Terms of Insurance Contract

The Colorado Supreme Court issued its opinion in Craft v. Philadelphia Indemnity Insurance Co. on Tuesday, February 17, 2015.

Claims-Made Insurance Policies—Notice Requirements in Insurance Policies—Notice-Prejudice Rule.

In this opinion, the Supreme Court answered a question of state law certified by the U.S. Court of Appeals for the Tenth Circuit. The question, as reframed by the Court, was whether Colorado’s notice-prejudice rule applies to a date-certain notice requirement in a claims-made insurance policy. The Court concluded that excusing noncompliance with such a requirement would alter a fundamental term of the insurance contract and would not serve the public policy interests that originally supported the adoption of the notice-prejudice rule. Accordingly, it answered the question in the negative and returned the case to the Tenth Circuit for further proceedings.

Summary and full case available here, courtesy of The Colorado Lawyer.

Tenth Circuit: Insurance Policy’s Restriction on Assignment Did Not Forbid Assignment of Postloss Claim

The Tenth Circuit Court of Appeals published its opinion in City Center West v. American Modern Home Insurance Company on Thursday, February 6, 2014.

City Center West LP (City Center) owned a commercial property in Greeley, Colorado, subject to a mortgage held by Summit Bank & Trust (Summit Bank). When Summit Bank learned that City Center had failed to insure the property, the bank’s parent company, Heartland Financial USA, Inc. (Heartland Financial), obtained coverage for the property through its blanket insurance policy (the Policy) with American Modern Home Insurance Company (American Modern). The Policy identified Heartland Financial and its branches, including Summit Bank, as the “Named Insured Mortgagee.” It provided that losses be paid to the Named Insured Mortgagee to the extent of its interest and that any benefits payable in excess of that interest “shall be paid to the mortgagor” (which was City Center). Liability was limited to the interest in the property of the mortgagee and the mortgagor. The Policy was excess insurance—that is, it paid out only if there was no other insurance policy that would cover the claim. It included a nonassignment provision that stated: “Assignment of this Policy shall not be valid unless we [American Modern] give our written consent.

On September 23, 2011, the property was damaged by vandalism and a burglary. City Center estimated that the cost of repair would exceed $3.5 million. City Center notified American Modern of the loss and four months later it requested payment. American Modern refused to pay the amount requested, but tendered a $321,069 check to Summit Bank. Heartland Financial and Summit Bank assigned to City Center all their rights with respect to the claim. American Modern never consented to the assignment.

City Center filed its complaint against American Modern in the United States District Court for the District of Colorado. It asserted claims for bad-faith breach of insurance contract, breach of contract, and violations of Colorado insurance statutes. American Modern filed a motion to dismiss on the grounds that the assignment to City Center was prohibited by the Policy’s nonassignment provision and City Center was not a third-party beneficiary. The district court granted the motion. City Center appealed.

The issue on appeal was whether the Policy’s restriction on assignment of this Policy forbade the assignment of a postloss claim under the Policy. The weight of authority is that assignment of a postloss claim under an insurance policy is not an assignment of the policy. The majority of courts adhere to the rule that general stipulations in policies prohibiting assignments of the policy, except with the consent of the insurer, apply only to assignments before loss, and do not prevent an assignment after loss. American Modern’s policy could have barred assignment of postloss claims by simply saying that such assignments were barred. It did not.

The Tenth Circuit REVERSED the judgment of the district court and REMANDED for further proceedings consistent with this opinion.