July 15, 2018

Colorado Court of Appeals: Subrogated Insurers Held Right to Pursue Claims On Behalf of Insureds

The Colorado Court of Appeals issued its opinion in American Family Mutual Insurance Co. v. American National Property & Casualty Co. on Thursday, September 24, 2015.

Inverse Condemnation—Motion for Limited Discovery.

Plaintiffs are 25 insurance companies (collectively, carriers). On March 22, 2012, the Colorado State Forest Service initiated a prescribed burn on land owned by Denver Water. On March 26, high winds carried embers from the burn onto land located outside the prescribed burn’s perimeter. What became known as the Lower North Fork Fire ignited and spread rapidly, resulting in loss of life and significant property damage.

This subrogation lawsuit followed and, with 25 insurance companies, the pleadings are “voluminous.” The carriers relied on inverse condemnation claims against the Colorado Department of Public Safety (Department) and the Denver Water Board (Denver Water).

The Department moved to dismiss for lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted. To respond, the carriers moved to conduct limited discovery. The district court denied the motions to conduct discovery, granted the motions to dismiss, and certified the order for purposes of appeal. As to the motions to dismiss, the court found that the carriers had failed to allege a public purpose for the taking of their insureds’ properties.

The Court of Appeals first rejected the Department’s argument that the carriers had not established standing. The insureds had a right to pursue inverse condemnation claims and the carriers stood in their shoes by virtue of the alleged subrogation relationships.

The Court next addressed the carriers’ argument that the district court erred in dismissing the claims because they did plead a public purpose. To prove an inverse condemnation claim under the Colorado Constitution, a property owner must show (1) that there has been a taking or damaging of a property interest; (2) for a public purpose; (3) without just compensation; (4) by a governmental or public entity that has the power of eminent domain, but which has refuse to exercise that power. The finding of a public purpose requires inquiring into whether the condemnation’s essential purpose is to obtain a public benefit. None of the carriers’ allegations explained how the alleged taking of their insureds’ private property furthered the purposes for which the prescribed burn was initiated, and there were no allegations that the taking itself was accomplished for a public purpose. Therefore, the carriers failed to allege, and could not allege, a public purpose for the taking of their insureds’ properties.

The Court also held that the district court did not err in denying the carriers’ motion to conduct discovery to respond to the motions to dismiss. In denying the motion, the district court cited CRCP 16(b)(1), which states that, except as provided in CRCP 26(d), discovery may commence 42 days after the case is at issue, and this case was “not close to being at issue . . .” Moreover, the purpose of a CRCP 12(b)(5) is to test the legal sufficiency of a claim that, by definition, does not involve factual matters outside the pleadings. The Court agreed with the district court’s reasoning and found no abuse of discretion. The order and judgment were affirmed.

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

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