Wednesday, December 11, 2013
In the last year, the U.S. District Court for the District of Colorado found that a settlement payment from an excess insurance carrier to another primary insurance carrier precluded a finding of vertical exhaustion sufficient to trigger the primary carrier’s duty to indemnify. See Scottsdale Ins. Co. v. National Union Fire Ins. Co. of Pittsburgh, 2012 WL 6004087 (D. Colo. 2012). The Scottsdale case arose out of the construction of a 507-unit apartment complex in Arapahoe County, Colorado in which a number of defects became apparent during construction. As a result, the owner of the project sued the general contractor and/or the construction manager, seeking to recover more than $22 million for various construction deficiencies. Id. at *1.
The general contractor was insured under policies issued by several carriers. Scottsdale Insurance Co. (“Scottsdale”) and National Union Fire Ins. Co. (“National Union) provided umbrella coverage, and CNA and American Zurich Ins. Co. (“Zurich”) provided primary insurance under commercial general liability policies. About five years later, the construction defect case settled for $8.5 million dollars. The settlement was funded by CNA, Scottsdale, and Zurich. CNA contributed $4 million, Scottsdale contributed $4,350,000, Zurich contributed $75,000, and the insured contributed $75,000. National Union did not contribute to the settlement. In a related agreement, Scottsdale agreed to pay CNA $500,000 to facilitate the resolution of related coverage disputes involving CNA.
Subsequently, Scottsdale commenced a declaratory judgment action against National Union seeking reimbursement for at least $2,283,911 of the funds Scottsdale paid to settle the construction defect action. Scottsdale asserted four claims for relief, including equitable contribution and contractual subrogation. National Union answered, denied liability, and eventually moved for summary judgment. According to National Union, Scottsdale could not show that the primary insurance policies underlying the National Union umbrella policies had been fully exhausted. Id. at *2. National Union argued that Scottsdale payment of $500,000 precluded Scottsdale from showing that the policy limits under a certain CNA policy had been fully exhausted. National Union characterized Scottsdale’s $500,000 payment as replenishment of policy limits under the CNA policy limits. Although Scottsdale attempted to argue that the $500,000 payment applied to only one CNA policy, the court disagreed.
In commenting on testimony offered by a Scottsdale representative limiting that payment to a certain CNA policy, the court stated “[t]his evidence does not satisfy Scottsdale’s evidentiary burden with respect to the exhaustion requirement.” Id. at *3. Notably, the court indicated that the relevant factual inquiry is how CNA allocated the $500,000, and that Scottsdale had not presented any evidence on that subject. As a result, the court found that Scottsdale’s response lacked the requisite evidentiary support to preclude summary judgment on the question of vertical exhaustion. The court granted National Union’s motion for summary judgment, dismissed all of Scottsdale’s claims, and awarded National Union its costs. The takeaway from this case is to be extremely cautious when considering the possibility of settlement with one of several potential carriers who may be liable for defense and/or indemnity. You may be impairing and/or precluding coverage.
Wednesday, December 4, 2013
The term “ongoing operations” has appeared in construction insurance policies for many years. Here in Colorado, that phrase has had a particular meaning when applied to an insurer’s coverage of liability arising out of an insured’s work, i.e. liability arising during an insured’s work on a specific project. The case of Jaynes Corporation v. American Safety Indemnity Company illustrates a new trend in other jurisdictions where courts are loosening the coverage application of an “ongoing operations” clause.
In December 2012, in U.S. District Court in Nevada, Judge Miranda M. Du ruled on cross motions for summary judgment filed by Jaynes Corporation (“Jaynes”) and American Safety Indemnity Company (“ASIC”). ASIC’s argument that the “ongoing operations” provision precludes coverage for Jaynes is the pertinent issue to this article.
The background facts of the case are pretty standard for construction litigation. A subcontractor entered into written agreement with Jaynes, the general contractor, for site concrete work at a residential housing project. In the contract, the subcontractor agreed to name Jaynes as an additional insured on policies issued by ASIC. The damages in the original construction litigation, between the homeowners association and the developer, were alleged to have occurred during the policy periods. The subcontractor performed its work on the project in 2003 and 2004.
ASIC asserted that the “ongoing operations” provision in the policies, issued to the subcontractor, precludes coverage for the construction defect claims in the underlying lawsuit because those claims involved completed operations. ASIC argued that the claims involved completed work and not works in progress. Jaynes countered-argued that the “ongoing operations” provision does not restrict coverage to damage that occurred during the subcontractor’s ongoing operations, but it also covers claims for damages that occurred after completed operations but was caused by ongoing operations.
Judge Du discarded ASIC’s arguments and agreed with Jaynes, determining that the “ongoing operations” clause applies to damage on work performed by the subcontractor caused by its ongoing operations. Judge Du cited two cases, from Arizona and California, which analyzed similar “ongoing operations” clauses. Those two cases, Tri-Star Theme Builders, Inc. v. OneBeacon Insurance Co., 426 Fed.Appx. 506 (9th Cir. 2011) and McMillin Construction Services, L.P. v. Arch Specialty Insurance Co., 2012 WL 243321 (S.D. Cal. Jan. 25, 2012), determined that the policies at issue covered liability performed by a subcontract caused by that subcontractor’s ongoing operations. In those cases, the specific language, “arising out of,” in the “ongoing operations” clause was vital to the courts’ rulings.
Judge Du noted that Nevada courts, like those of Arizona for Tri-Star and California for McMillan, review insurance policy terms from the perspective of a layman not trained in law or insurance, and the contract language viewed in its plain, ordinary, popular meaning. Judge Du found compelling the Tri-Star’s Court’s discussion of the phrase “arising out of,” “this language does not state that injury must occur, or liability must arise, during the name insured’s ongoing operations, but rather requires only that the liability arise “out of” the ongoing operations.” Tri-Star, 426 Fed.Appx. at 510 (9th Cir. 2011).
Judge Du also addressed ASIC’s arguments and supportive cases contrary to Tri-Star and McMillan. One of the cases ASIC cited was a Colorado case, Weitz Co., LLC v. Mid-Century Ins. Co., 181 P.3d 309 (Colo. App. 2007). Judge Du stated that those contrary cases relied not on the plain language of the provisions at issue, i.e. “ongoing operations,” but rather, the drafting history of the clause by the insurance company. Judge Du went further stating that such history lessons are not persuasive in the face of the plain language of the “ongoing operations” clause. Judge Du then let the Tri-Star case speak for her one more time:
Such evidence might be persuasive if the controversy . . . were between two insurers, or if it suggested that the language reflected the mutual intent of the parties. This evidence is wholly lacking here. Indeed, . . . the only court to construe the additional insured endorsement, without reference to the industry’s drafting history, held that it provided coverage for damages occurring after the completion of operations.
Tri-Star, 426 Fed.Appx. at 512 (9th Cir. 2011).
The Weitz case has a similar factual background to the Jaynes case: A general contractor, sued by a homeowner, brought an action against an insurer that issued a policy to a subcontractor to which the general contractor was an additional insured. The district court granted the insurer’s summary judgment motion asserting that coverage was limited to “ongoing operations” and there was no coverage for claims arising out of subcontractor’s completed work or operations. Weitz, the general contractor, appealed the order and the Colorado Court of Appeals affirmed the district court’s ruling.
In coming to its decision, the Colorado Court of Appeals found persuasive an analysis of the ISO’s history of drafting the additional insured endorsement (CG 20 10 1993) in another case. The Weitz court found their construction of the phrase and the coverage it affords to be in line with the views of commentators addressing the history of the ongoing operations clause. Ultimately, the Weitz court found that no ambiguity existed and the “ongoing operations” clause would not cover any work that had been previously completed.
The analysis by the Weitz court is exactly what Judge Du found unpersuasive as it failed to dissect the plain language of the clause, instead relying on the history of the clause within the insurance industry. While the Jaynes case is not authority in Colorado, the fact is a trend is emerging in courts of neighboring jurisdictions and soon Colorado courts may be faced with a similar analysis. We have to wait and see if Weitz will be challenged soon. Using these mounting cases as support for an extension of coverage under the “ongoing operations” clause seems imminent in Colorado courts.
Tuesday, November 26, 2013
Read Carefully. The Insurance Coverage You Thought You Were Getting May Not Be The Coverage You Got.
A recent U.S. District Court case in Colorado highlighted the importance for an insured to read and understand the terms of its insurance policy. The case 2-BT, LLC v. Preferred Contractors Insurance Company Risk Retention Group, LLC, Civil Action No. 12CV02167PAB, was a controversy between an insured’s expectations for coverage, and the terms and exclusions of the insurance policy.
2-BT is a heating, ventilation, and air-conditioning (“HVAC”) contractor, which utilizes soldering devices and heat sources among other tools for its trade. 2-BT needed liability insurance to cover its work, and found a provider, Preferred Contractors Insurance Company Risk Retention Group, LLC (“PCIC”). 2-BT read PCIC’s online materials, which stated “PCIC’s personalized underwriting process allows us to tailor coverage to properly outfit the contractor with excellent coverage and rates.”
2-BT filled out a policy application, which included a description of the type of HVAC work it performs, initialed several sections, and signed it. One of the initialed paragraphs on the application, “Policy Exclusions,” stated that damages arising from “fungi/bacteria,” “open flame,” and “use of heating devices,” was not covered. PCIC issued a policy to 2-BT, which included a section titled, “Additional Exclusions” that excluded coverage for mold and damage related to heating elements among others.
A few weeks after the policy went into effect; a 2-BT employee was using a blow-torch on a job, but triggered a fire sprinkler that flooded two condominium units, which led to mold growth. 2-BT submitted a claim to PCIC, but PCIC denied coverage. 2-BT sued PCIC, claiming fraud, deceptive trade practices under the Colorado Consumer Protection Act (“CCPA”), and breach of contract.
The Court dismissed the lawsuit without a trial, granting PCIC’s motion for summary judgment. The Order can be found at 2013 WL 5729932.
2-BT based its claims for fraud and under the CCPA on PCIC’s statement online that it provides a “personalized underwriting process. . . to tailor coverage to properly outfit the contractor with excellent coverage and rates.” The Court, however, held that this was merely a statement of opinion, or puffery, and not one a reasonable person would consider an objective statement of warranty. The statement is not actionable under fraud or the CCPA.
For its breach of contract claim, 2-BT claimed that the policy was ambiguous, as it did not meet the reasonable expectations of an HVAC contractor. Both parties acknowledged that the policy incorporated the application, where 2-BT provided basic information about the type of work it performs. 2-BT argued that an HVAC contractor would reasonably expect coverage for work using heat elements. But the Court disagreed, stating, “Here, the relevant inquiry is not what an HVAC contractor might reasonably expect, but what an ordinary reader would reasonably expect and understand upon a reading of the entire policy.” Order at pg. 6, citation omitted. The Court found that “an ordinary reader of the entire application and policy would reasonably expect that liability arising from mold and the use of heating elements would be excluded from coverage.” Order at pg. 7. Further, since the policy would cover occurrences arising from personal injury and other types of property damage, the policy was not illusory. In exchange for receiving premiums from 2-BT, PCIC was incurring a risk of liability that the policy would cover.
When applying for or obtaining an insurance policy, it is critical that the insured confirms that the policy, its terms and exclusions, actually provides the coverage to meets the insured’s needs.
Tuesday, November 19, 2013
On October 24, 2013 the Colorado Court of Appeals granted a rare interlocutory appeal in a multi-family residential construction defect case. The Court of Appeals accepted the case of Triple Crown at Observatory Village Association, Inc. v. Village Homes of Colorado, Inc. (2013 WL 5761028) as an interlocutory appeal after the parties briefed and obtained rulings from the trial court that compelled the case to binding arbitration in lieu of a jury trial on all issues. The appellate decision of October 24, 2013 did not decide the merits of the case, but discussed the issues to be decided in the eventual merits decision. The significance of the issues presented and the interlocutory nature of this appeal both make this case worth watching for further appellate proceedings.
The core issue in this appeal was the applicability of Colorado’s Uniform Arbitration Act (C.R.S. § 13-22-201, et seq.), based on recorded Declarations filed by the developer. The Declarations mandated that the HOA arbitrate any design/construction disputes with the developer. Immediately prior to suit, the Association sought to amend the Declarations in order to avoid the arbitration process for these claims. The interlocutory appellate issues resulted from the trial court’s order compelling the arbitration over the objections of the Association.
The trial court’s decision was based on a reading of the Colorado Revised Non-Profit Corporation Act (“CRNPC,” at C.R.S. § 7-127-107), which was found applicable to the Association. The CRNPC which requires that any written vote (in lieu of an actual meeting vote) to revise the declarations governing a non-profit be accomplished by a 2/3 majority of the members of the association, and that all such written votes be gathered within a 60-day period after obtaining the first signature.
The trial court determined that the Association had only obtained 42% of the necessary signatures within the 60-day statutory period, and that it had obtained the balance of 67% of required signatures only two months after the statutory 60-day period. As a result, the trial court found that the Declarations had not been properly amended to preclude arbitration, and it ordered the parties to binding arbitration.
The Association appealed the trial court ruling applying the CRNPA to the Association, arguing that it conflicted with the provisions of the Colorado Common Interest Owners Act (“CCOIA,” at C.R.S. § 38-33.3-301, et seq.), which generally governs multi-family residential developments and their affiliated homeowners associations. The Association asserted that CRNPA was not applicable to the Association for purposes of time-restricting the members’ process of amendment of the Declarations, because CCOIA did not impose any time constraints as part of its provisions for the members’ amendment or repeal of Declarations.
Finally, the Association also argued that CCOIA prohibited restrictions between the Association and the developer which were greater than limitations for the Association in dealing with other persons and entities. This was based on an argument that the Association was not required to arbitrate disputes between itself and others, unlike issues with the developer.
The final issue that was accepted for this interlocutory appeal was whether the Association’s punitive damage claims for alleged developer violations of the Colorado Consumer Protection Act (“CCPA”) were also subject to arbitration, as ordered by the trial court. The Association argued that such claims were not subject to arbitration.
The focus of the present Court of Appeals decision dealt with the appropriateness of granting the interlocutory appeal, and whether the issues involved controlling and unresolved questions of Colorado law. The decision to grant the interlocutory appeal was a 2-1 decision, with Judge Terry dissenting, because he felt that the circumstances of the case made the granting of the appeal impermissible under the Colorado Uniform Arbitration Act. Judge Terry relied substantially on the deference given to trial judge orders compelling arbitration under the language of the arbitration statute, and the preference of appellate courts not to grant interlocutory appeals.
While the granting of this interlocutory appeal is not predictive of the outcome that will follow on the merits of the issues, the issues are significant to construction professionals and the attorneys that represent them. There has been a multi-year trend by developers to limit design and construction issues with homeowners’ associations to private arbitration, in lieu of jury trials. Similar declarations have led to a greater number of developer-compelled arbitration proceedings for residential construction defect claims over the past several years.
This is the first case in Colorado which clearly seeks to defeat these arbitration provisions as being in claimed conflict with the provisions of CCOIA, after the homeowners’ association seeks to repeal the declarations arbitration language. Similarly, it is the first case which seeks to carve out the Associations’ CCPA claims for a jury trial, separate from the disputes which are made subject to arbitration by the terms of a developer’s declarations.
On this latter issue, it is notable that CCPA claims are generally declined by insurers as covered claims, despite the requests of the insured and its coverage counsel for defense of these claims. Separate from the above-discussed matters of arbitration enforcement, it is a matter of concern to construction professionals that there may (in a future decision) be a potential separation of such claims from the negligence-based claims of construction defects. A separation of such claims would potentially leave the construction professional without available insurance coverage for both indemnity and defense on those CCPA claims.
For additional information regarding the Triple Crown case or construction litigation in Colorado, you can reach Buck Mann by e-mail at firstname.lastname@example.org or by telephone at (303) 987-7143.
Tuesday, November 12, 2013
DRCOG’s Findings on the Impact of Construction Defect Litigation Have Been Released (And the Results Should Not Surprise You)
The downward trend in attached-housing construction in Colorado is well-known and discussed often within the region’s construction, insurance, finance, and legal communities. In recent years, builders and insurers in particular have striven to bring greater awareness to local governments and lawmakers regarding the impact that construction defect lawsuits have on the builders’ ability to introduce desirable, affordable, yet cost-efficient attached-housing options, such as condominiums and townhomes, into the marketplace. The Denver Regional Council of Governments (“DRCOG”) has been aware of the builders’ and insurers’ plight, largely because of the impact that the scarcity of affordable attached-housing has had on their respective communities.
On October 29th, DRCOG released its long-awaited Denver Metro Area Housing Diversity Study, prepared by Economic & Planning Systems, Inc., which investigated the factors contributing to the recent (downward) attached-housing development trends and conditions. The Study evaluated factors including changing financing and insurance requirements for builders and homebuyers, the impacts of foreclosures, changes in prospective homebuyer demographics, economic conditions which limit options for prospective homebuyers, and the costs and risks associated with construction defect regulations and lawsuits.
Despite the retorts and rebukes of the naysayers, the negative impact of construction defect regulations and lawsuits on Colorado’s housing market is significant. In this regard, the DRCOG Study found that:
- There is a belief within the development community that the probability of being sued is nearly 100 percent for attached residential for-sale projects involving an HOA.
- The costs of litigation, including retaining experts to evaluate defects, and legal costs associated with the builders’ insurance companies seeking to recover costs from contractors, are a deterrent to future development.
- All of the national homebuilders interviewed indicated they have no plans for building attached for-sale housing in Colorado—where the risk of being sued is “just not worth it.”
- At least one insurer interviewed opined that insurance premiums are 25 to 45 percent higher in Colorado than other states for comparable products.
- The number of subcontractors and development team members willing and/or able to work on attached for-sale housing has diminished.
- Developers are estimated to need to pay an average of $15,000 of additional cost per unit due to construction defects (i.e., the eminent threat of a lawsuit for same).
I encourage anyone and everyone reading this article, and particularly those within Colorado’s construction, real estate, finance, insurance, and government circles, to read the DRCOG Study and to become more in-tune with the real risks and concerns brought on by rampant construction defect litigation in Colorado. Based on the DRCOG Study’s findings, you can’t afford not to.
For additional information regarding this or other construction law issues in Colorado, you can reach Derek Lindenschmidt by e-mail at email@example.com or by telephone at (303) 987-9814.
Monday, October 21, 2013
The Colorado Court of Appeals recently handed down an opinion dulling the teeth of the “no voluntary payment” clauses found in many contractors’ insurance policies. In the case of Stresscon Corporation v. Travelers Property Casualty Company of America, 2013 WL 4874352 (Colo. App. 2013), the Court of Appeals found that an insured’s breach of the “no voluntary payment” clause does not always bar the insured from receiving benefits from its insurance company.
In July 2007, at a construction project run by Mortenson (the “GC”), a partially erected building collapsed, killing one worker and gravely injuring another. The collapse was caused by a crane hook pulling a concrete component off of its supports. The GC contracted with Stresscon Corporation (“Stresscon”) to build pre-cast concrete components for the project, and in turn Stresscon hired two sub-subcontractors, RMS and Hardrock (the “Crane Team”) to work together to erect those concrete components. Stresscon and the Crane Team had liability insurance, and Stresscon was insured by Travelers Property Casualty Company of America (“Travelers”).
The accident led to three separate lawsuits: 1) one brought by the deceased worker; 2) one brought by the injured worker; and 3) one brought by the GC against Stresscon claiming it was entitled to contract damages incurred because the project was delayed. The first two personal injury cases were settled. The third case relates to the Stresscon case and its resolution.
Initially, the GC notified Stresscon that it expected to be reimbursed for the damages resulting from the delay to the project caused by the accident. Stresscon then informed Travelers of the claim, to which Travelers responded by sending two reservation of rights letters stating that Stresscon’s insurance policy might not cover the delay damages sought by the GC. Travelers also sent a later letter to the GC on behalf of Stresscon denying that it was liable to the GC. At this time, the GC entered into settlement discussions with Stresscon.
After negotiations, the GC settled its dispute with Stresscon. The settlement reimbursed the GC for delay damages caused by the accident and other unrelated damages resulting from the accident that were clearly not covered by Stresscon’s insurance policy. The settlement was not allocated between categories of covered by insurance and not covered by insurance. Before entering into the settlement, Stresscon did not inform Travelers or obtain its consent.
Once Stresscon settled with the GC, it initiated a case against the Crane Team and Travelers. The lawsuit alleged the Crane Team owed Stresscon indemnification for the delay damages paid to the GC. Stresscon also alleged that Travelers had, in bad faith, breached its duty to Stresscon, violating C.R.S. § 10-3-1115(1)(a), by unreasonably delaying or denying a claim for benefits. The case was bifurcated into two phases, the first between Stresscon and the Crane Team to determine liability and damages, the second against Travelers on contractual bad faith claims.
The jury in the first phase found the Crane Team was liable to Stresscon for $678,826, the amount the GC, and thus Stresscon, had suffered as a result of the accident. One insurer for a member of the Crane Team settled with Stresscon and paid it $678,826. The first phase was not appealed.
The second phase involved only Stresscon and Travelers. In this phase, the jury was asked: 1) to decide whether Travelers had acted unreasonably in denying Stresscon’s claim for benefits to cover the amount that it had paid to the GC; 2) to decide whether Travelers had suffered prejudice as a result of Stresscon’s settlement with the GC; and 3) to apportion the first jury’s award among categories of damages, some of which were not covered by the insurance policy. The jury found Travelers had unreasonably denied Stresscon’s claim, Travelers had not been prejudiced by the settlement, and that $546,899 of the first phase award represented damages that were covered by the insurance policy.
Travelers appealed several aspects of the trial court’s ruling, as did Stresscon. Here, we will only discuss Travelers’ appeal of the trial court’s ruling that it was not prejudiced by Stresscon’s breach of the “no voluntary payment” clause.
Travelers argued that the notice-prejudice rule adopted in Friedland v. Travelers Indemnity Co., 105 P.3d 639 (Colo. 2005), does not apply to “no voluntary payment” clauses. Travelers also argued that insurers are prejudiced as a matter of law whenever an insured settles with a third-party claimant before that third party has filed a lawsuit. The Court of Appeals disagreed and upheld the trial court’s ruling.
In ruling against Travelers, the Court of Appeals relied on the notice-prejudice rule, described in the Friedland case. The notice-prejudice rule comes with a burden shifting procedure, which provides that (1) if an insured does not provide the insurer with notice of a claim until after the insured has settled; then (2) the insured will lose benefits after the settlement based on a presumption of prejudice; unless (3) the insured rebuts the presumption that the insurer’s interests were prejudiced by the lack of notice; and (4) the insurer does not then prove that it was actually prejudiced by the lack of notice.
Despite Friedland addressing an insured’s failure to give notice of a claim, the Court of Appeals found that another case, Lauric v. USAA Casualty Insurance Co., 209 P.3d 190 (Colo. App. 2009), relied on Friedland to conclude that the notice-prejudice rule applied to “consent to settle” clauses. The Court of Appeals in the present case found that such “consent to settle” clauses are similar to the “no voluntary payment” clauses at issue.
The notice-prejudice rule’s burden shifting procedure allows an insured to rebut the presumption of prejudice caused by the breach of the policy by introducing evidence contrary to that prejudice. The Friedland case provided some examples of such evidence, including proof that: 1) the insured obtained all material information that could have been obtained in the course of reaching a settlement; 2) the insured raised all legitimate defenses; 3) the insured’s liability was reasonably clear under the facts and the law; and 4) the insurer, had it received notice, could not have obtained any materially better outcome than the insured achieved without the insurer’s assistance.
It was undisputed that Stresscon breached the “no voluntary payment” clause, meaning there was a presumption that Travelers was prejudiced. Stresscon then had to overcome that presumption by presenting evidence similar to that laid out in Friedland. The Court of Appeals noted that Stresscon presented evidence that: 1) its liability to the GC was reasonably clear because it owed damages to the contractor for the project’s delay under the parties’ construction contract; 2) Stresscon was responsible for the disruption, the effect on the plan, and the flow of the work; 3) the GC incurred costs associated with the accident such as securing the site, evidence preservation, moving the evidence to a new location, dealing with OSHA, adding a scheduler, legal representation, demolishing the site, demolishing parts of the foundations and rebuilding the foundations, and delay to progress of the work; 4) the GC had written Stresscon identifying the type of damages being incurred; 5) Stresscon was responsible for supervising the Crane Team at the time of the accident; 6) Travelers’ second vice-president of complex claims testified that the contract between the GC and Stresscon created legal obligations; 7) Stresscon obtained all material information necessary to analyze the claim; 8) Stresscon asked for backup documentation of the costs of the delay; 9) Stresscon received a claim document containing breakouts detailing the costs the GC incurred; 10) the GC designated an employee who provided Stresscon with information in every different form and style it asked for; 11) the settlement was reasonable; 12) Travelers would not have achieved a result that was materially better; 13) the settlement amount was significantly less than the amount of the delay plus accident claims; 14) Travelers’ second vice-president of complex claims testified that he had no idea if Travelers could have reached a better settlement; and 15) that Travelers had it been asked, by Stresscon, to represent it in the settlement negotiations would have refused.
The Court of Appeals found this evidence sufficient to shift the burden back to Travelers to prove that it was actually prejudiced. To prove prejudice, a party must establish the precise way in which its interests were damaged. The Court of Appeals noted that such a standard does not contemplate the mere possibility of prejudice. In denying Travelers’ appeal, the Court of Appeals found that its assertions of prejudice were questions of fact determined by the jury. Because Travelers’ assertions were determined by the jury, the Court of Appeals reviewed the evidence and found that there was enough sufficient probative force to support the jury’s findings. Of particular interest to the Court of Appeals was the evidence that Stresscon’s liability was “reasonably clear;” the settlement was “reasonable;” and that Travelers would not have achieved a result that was “materially better.”
In the end, the Court of Appeals was not persuaded by Travelers and found that Stresscon should not lose its benefits automatically because it breached its “no voluntary payment” clause. However, it does appear that the case has been appealed and is awaiting a decision from the Colorado Supreme Court about whether the case will be heard. Until then, some of the teeth of the “no voluntary payment” clause have been removed.
Monday, September 16, 2013
The Colorado Pool case has been featured in two past blog entries, including: “An Arapahoe County District Court Refuses to Apply HB 10-1394 Retrospectively,” which discussed the case at the trial court level, and “Colorado Court of Appeals Finds Damages to Non-Defective Property Arising From Defective Construction Covered Under Commercial General Liability Policy,” which discussed the case at the Court of Appeals level. In both instances, the courts held that retroactively applying C.R.S. C.R.S. § 13-20-808 to policies in effect prior to the date of the statute’s enactment would be impermissibly retrospective because it would change the coverage under the policy for which the parties had originally bargained.
On September 3, 2013, the Colorado Supreme Court granted Colorado Pool Systems, Inc.’s petition for writ of certiorari and summarized the issue to be decided as:
Whether the court of appeals erred in (a) holding that section 13-20-808, C.R.S. (2012) would be unconstitutionally retrospective as applied to Colorado Pool’s commercial general liability (CGL) policy and (b) whether the court of appeals further erred in its interpretation of the CGL policy under the common law.
For additional information regarding C.R.S. § 13-20-808 or the Colorado Pool’s case, you can contact David M. McLain by e-mail at firstname.lastname@example.org or by telephone at (303) 987-9813.