September 20, 2018

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: Standing as Insurance Company’s Local Agent Not Enough to Prove Significant Defendant Requirement Under CAFA Removal Provision

The Tenth Circuit Court of Appeals issued its opinion in Woods v. Standard Insurance Co. on Monday, November 10, 2014.

Plaintiffs Brett Woods and Kathleen Valdes filed suit in New Mexico state court on behalf of themselves and a class of all others similarly situated, regarding premiums paid for insurance coverage for state employees who were not insured under the subject policies. Plaintiffs named three defendants: Standard Insurance Company, an Oregon company that agreed to provide the subject insurance coverage; the Risk Management Division of the New Mexico General Services Department (Division), the state agency that contracted with Standard and was responsible for administering benefits under the policies; and Martha Quintana, Standard’s customer service representative responsible for managing the Division’s account with Standard and providing customer service and account management to the Division and New Mexico state employees. Defendants moved to remove the action to federal district court pursuant to the provisions of the Class Action Fairness Act (CAFA), which allow removal of state class actions to federal court as long as minimal diversity is established and the amount in controversy exceeds $5 million. Plaintiffs objected to removal before a federal magistrate, claiming CAFA’s state action and local controversy provisions precluded removal. The magistrate remanded the case to state court, finding remand proper under the local controversy exception because Ms. Quintana was a local defendant from whom plaintiffs sought “significant relief.” The magistrate did not examine the amount in controversy to see if it met CAFA’s requirements. Defendants appealed the magistrate’s order of remand.

The Tenth Circuit first explained that Congress enacted CAFA to allow removal to federal court of certain class actions in which the class has more than 100 members, is minimally diverse, and the amount in controversy exceeds $5 million, in order to correct certain perceived abusive practices in state court by class plaintiffs. Exceptions to CAFA’s broad reach include cases in which primary defendants are states against which the district court may be foreclosed from ordering relief under the Eleventh Amendment, and also local controversies in which states have a strong interest in adjudicating disputes. Plaintiffs argued that because the Division is a primary defendant, CAFA’s exception applies. However, the Tenth Circuit disagreed, finding that the exclusion only applies where all primary defendants are states or state agencies. Because Standard is a primary defendant in this dispute, the CAFA exclusion does not apply. Plaintiffs also argue that Ms. Quintana is a significant local defendant. The Tenth Circuit examined whether Ms. Quintana’s conduct formed a significant basis for Plaintiffs’ claims, and whether Plaintiffs seek significant relief from her.

The Tenth Circuit noted that Ms. Quintana is only mentioned briefly in Plaintiffs’ 91-paragraph complaint, and found that Ms. Quintana’s standing as Standard’s only local agent was not enough to meet the significant defendant requirement. Plaintiffs do not allege it is part of Ms. Quintana’s job to collect of insurability, make coverage determinations, record who had purchased insurance coverage, or verify that employees were in fact receiving coverage, and their complaint does not suggest she ever collected or retained premiums, solicited employees to purchase insurance, enrolled state employees, or had any actual contact with Plaintiffs or other state employees. The sole basis of Plaintiffs’ complaint against Ms. Quintana is that she failed to discover the Division’s and Standard’s allegedly illegal conduct. Therefore, the Tenth Circuit concluded she was not a significant defendant and reversed the magistrate judge’s decision on this issue.

The Tenth Circuit found there was an actual dispute as to whether the amount in controversy met or exceeded the $5 million minimum for removal under CAFA. Therefore, it remanded to the magistrate for determination of whether the amount in controversy exceeds $5 million. If it does, Defendants have established federal jurisdiction under CAFA, and if it does not, the action must be remanded to state court.

Tenth Circuit: No Ambiguity in Insurance Policy Exclusions for Environmental Pollution

The Tenth Circuit Court of Appeals issued its opinion in Headwaters Resources, Inc. v. Illinois Union Insurance Co. on Monday, October 20, 2014.

Headwaters Resources, Inc., constructed a golf course at the Fentress site in Chesapeake, Virginia. Residents of neighborhoods surrounding the Fentress site sued Headwaters in Virginia state court, alleging property damage and bodily injury sustained due to pollution generated during the golf course construction. Plaintiffs in the Virginia case alleged that between 2002 and 2007 Headwaters used 1.5 million tons of toxic fly ash and byproducts, which contaminated its groundwater, surface water, and the air; diminished the property values of the surrounding homes; and exposed community members to serious bodily injury risks from the fly ash. Headwaters sought reimbursement of its litigation expenses from its two insurers, ACE Insurance Co. and Illinois Union Insurance Co. (collectively, ACE). ACE denied coverage under its environmental pollution exclusion, and Headwaters brought suit in Utah District Court to enforce coverage. ACE moved for summary judgment, arguing that the pollution exclusions expressly precluded coverage. Headwaters filed a cross-motion for summary judgment, but the district court agreed with ACE, finding the insurance policies unambiguously barred coverage for environmental pollution. Headwaters appealed.

The Tenth Circuit analyzed Headwaters’ claims, which contended the district court failed to appreciate ambiguities in coverage under the policies. According to Headwaters, those ambiguities precluded summary judgment in favor of ACE. Upon analysis of the pollution exclusions and the claims against Headwaters, however, the Tenth Circuit found no ambiguity. Applying Utah’s “eight corners rule” and contract law, the Tenth Circuit found the insurers had no duty to defend. Headwaters argued the language of the insurance policies’ exclusions impermissibly abolished all coverage, but the Tenth Circuit disagreed, finding instead multiple possible scenarios in which coverage would have been applicable. In the instant case, the allegations of pollution fell within the policies’ exclusions. The Tenth Circuit noted that Headwaters could have purchased additional coverage that would have provided a duty to defend against environmental claims.

The Tenth Circuit affirmed the district court’s grant of summary judgment in favor of ACE.