Wednesday, December 3, 2014

Become Familiar With Your CGL Policy Exclusions to Ensure You Are Covered: Wardcraft v. EMC.

In a recent case arising out of a denial of coverage for alleged construction defect claims concerning a pre-fabricated home, the U.S. District Court for the District of Colorado applied the 10th Circuit’s determination of what can constitute an “occurrence” under a commercial general liability (“CGL”) policy.  See Wardcraft Homes, Inc. v. Employers Mutual Cas. Co., 2014 WL 4852117 (D. Colo. September 29, 2014).  William and Grace Stuhr sued Wardcraft, which manufactured pre-fabricated homes at a facility in Fort Morgan, Colorado, because their home was not completed as scheduled and contained various defects.  The Stuhrs filed suit against Wardcraft alleging negligence, breach of warranty, and deceptive trade practices in violation of the Colorado Consumer Protection Act.   

Wardcraft tendered the Stuhrs’ complaint to Employers Mutual Casualty Company (“EMC”), which denied coverage under its policy and denied any duty to defend.  According to EMC, the Stuhrs’ alleged construction defects were not property damages and there was no occurrence in connection with faulty workmanship.  Approximately two and a half years after they filed their initial complaint, the Stuhrs filed an amended complaint.  Wardcraft did not tender this amended complaint to EMC, and first informed EMC about the amended complaint about a year after it was filed.  A month prior, Wardcraft settled with the Stuhrs. 

About the same time, Wardcraft commenced suit against EMC, claiming it was entitled to a defense and indemnity under the EMC policy.  See Wardcraft Homes, Inc., 2014 WL at *2.  Wardcraft alleged breach of contract, bad faith breach of insurance, and unreasonable conduct pursuant to C.R.S. §§ 10-3-1115 and 10-3-1116.  Wardcraft filed a motion for partial summary judgment, arguing that EMC breached its duty to defend.  EMC filed a motion for summary judgment asserting it had no duty to defend or indemnify, and that Wardcraft’s bad faith and unreasonable conduct claims were barred by the applicable statute of limitations. 
In its motion, Wardcraft argued that EMC’s duty to defend arose from the allegations in the amended complaint.  Id. at *4.  The court noted, however, that Wardcraft failed to provide any evidence disputing EMC’s allegation that Wardcraft did not tender the Stuhrs’ amended complaint to EMC.  In its analysis, the court referred to the Greystone court’s prior determination that an occurrence under a CGL policy can encompass “unforeseeable damage to non-defective property arising from faulty workmanship.”  Id. (quoting Greystone Constr., Inc. v. National Fire & Marine Ins. Co., 661 F.3d  1272, 1282 (10th Cir. 2011)).  “In other words, ‘injuries flowing from improper or faulty workmanship constitute an occurrence so long as the resulting damage is to non-defective property, and is caused without expectation or foresight.”[1]  Id. (quoting Greystone Constr., Inc., 661 F.3d at 1284). 

The Wardcraft court applied Greystone to the Stuhrs’ complaint to determine whether it contained a factual or legal basis to conclude that the claimed damages resulted from an occurrence.  Although the court found no indication of any actual or consequential damages from a non-defective aspect of the Stuhrs’ home alleged in their complaint, it did find allegations of loss of use, which the court noted constituted property damage under Wardcraft’s EMC policy.  See Wardcraft Homes, Inc., 2014 WL *5.  As a result, the court found that the Stuhrs’ complaint alleged an occurrence with respect to property damage in the form of loss of use of property that was not physically injured. 

However, EMC argued that coverage was barred by the impaired property exclusion. Wardcraft apparently did not respond to this argument, and thus, the court found Wardcraft conceded EMC’s argument on the issue.  “Even if the Stuhr Complaint contains allegations that damages were caused by delay after the home was considered real property, the Stuhrs’ home would be considered impaired property under the EMC policy.”  Id. at *7.  The court concluded EMC satisfied its burden of showing that the impaired property exclusion applied to the alleged occurrence thereby finding the Stuhr complaint contained no factual or legal basis upon which to conclude that EMC would be liable for property damage as defined by the policy. 

Wardcraft attempted to craft another argument to support its allegation that EMC owed a duty to defend under the policy’s personal and advertising injury coverage.  According to Wardcraft, EMC’s potential liability for breaching its duty to defend arose out of its “use of another’s advertising injury.”  Id.  Finding little guidance from Colorado courts, the court looked to other jurisdictions that have been presented with this issue.  Those courts “have held that the ‘use of another’s idea’ means the ‘wrongful taking of the manner by which another advertises its goods or services’ or the ‘wrongful taking of an idea about the solicitation of business.”  Id. at *8.  The Wardcraft court found no allegation in the Stuhrs’ complaint that Wardcraft misappropriated the Energy Star moniker, and thus, found no advertising injury alleged in the Stuhrs’ complaint to implicate the EMC’s policy’s coverage for advertising injury.  Accordingly, the court granted EMC’s motion for summary judgment on the duty to defend, and found no corresponding duty to indemnify arising from the Stuhr complaint. 

The Wardcraft case emphasizes the importance of reviewing your CGL policy and its exclusions to ensure you are purchasing insurance that will protect you.  If you have questions about your CGL policy, or would like an attorney to review, you can reach Heather M. Anderson at (303) 653-0044 or by e-mail at

[1] It is important to note that this requirement to resulting or resultant damage to non-defective property is in terms of an occurrence under a CGL policy, and not necessarily a requirement in a civil lawsuit.         

Sunday, November 30, 2014

Colorado Defense Lawyers Association to Host a Construction Defect Reform Legislative Preview on December 10th

Construction Defect Reform – A Legislative Preview
December 10, 2014 – 3:00 to 5:00 pm
2 hours CLE applied for
Happy Hour to Follow
Members Only 
There is no question that the conversation surrounding construction defect litigation and legislation is both intensifying and that it has changed tone. Instead of being a dispute between the residential construction industry and homeowners, it has become a conversation between advocates for affordable housing on the one hand and plaintiffs’ construction defect attorneys, speaking either through the Community Association Institute or the Build Our Homes Right Coalition, on the other. On December 10th, the CDLA will host a seminar focused on this discussion, where it has been, and where it is going.
3:00-3:30 pm – A View of Construction Defect Reform at the State Level, by Mr. Tom Clark
Tom Clark is the Chief Executive Officer of the Metro Denver Economic Development Corporation and is currently involved with the Homeownership Opportunity Alliance. The HOA is a broad based coalition that supports a balanced, reasonable, and common-sense approach to improving the current legal environment, meeting the demands of home buyers, increasing the supply of affordable housing, and promoting the repair of defects and protecting the rights of consumers. Mr. Clark will discuss the legislative reform efforts over the last two years, and provide a preview for what may be in store for the 2015 legislative session.
3:30-4:00 pm РA View of Construction Defect Reform at the Local Level, by Ms. Ch̩rie Talbert
Ms. Talbert is the Senior Vice President of Public Affairs and Executive Director of the Metro Housing Coalition Political Committee for the Home Builders Association of Metro Denver. Ms. Talbert is very involved in local politics in the Denver metro area and has been orchestrating the local efforts to address the affordable housing crisis throughout the Denver area. She was instrumental in the passage of Lakewood’s much-discussed Ordinance No. 2014-21, Parker’s less-discussed Ordinance No. 9.217.1 and she is involved in similar efforts in other local jurisdictions. Ms. Talbert will discuss the history behind addressing construction defect reform at the local level, provide some context for the various approaches taken by different jurisdictions, and provide some insight for what other jurisdictions may be contemplating.
4:00 – 5:00 pm – Panel Discussion Regarding the Defense Communities’ Opinions on Various Approaches to Construction Defect Reform, moderated by Dave McLain
This panel discussion is intended to be an open forum and sharing of opinions and ideas among those typically involved in construction defect litigation, including counsel for the general contractor/developer, subcontractors, and design professionals, coverage counsel for both the insurer and the insured, and a representative of the insurance industry. If the legislature takes this issue up in the 2015 legislative session and it results in any legislation being passed, it is likely that the issue will not be addressed again in the foreseeable future. With that in mind, it is imperative that the legislation put forward actually moves the needle with respect to the size and frequency of construction defect lawsuits. Come share your thoughts regarding what might actually make a difference.
5:00 – 6:30 – Happy Hour 
There is no question that the conversation surrounding construction defect litigation and legislation is both intensifying and that it has changed tone.
See you there!
Construction Law Committee

Janet Wells, Chair, Ray Lego & Associates
David M. McLain, Vice Chair, Higgins, Hopkins, McLain & Roswell

Friday, November 21, 2014

Preparing for the 2015 Colorado Legislative Session

As Colorado starts to prepare for the 2015 legislative session, construction defect reform is shaping up to be another key issue under the Capitol dome. Once again, the Homeownership Opportunity Alliance (HOA) will be leading the charge. The HOA is a coalition of Coloradans working to open the doors to homeownership by: 1) protecting consumers from unknowingly entering into litigation and establishing solid processed through which homeowners and developers can work together to achieve a positive resolution to identified defects in construction, and 2) increasing the supply of attainable, affordable housing while protecting the rights of consumers to take legal action.

The HOA's coalition partners include:
American Subcontractors Association
Apartment Association of Metro Denver
Associated Builders and Contractors
Associated General Contractors
Building Jobs 4 Colorado
Colorado Association of Home Builders
CO Assoc. of Mechanical & Plumbing Contractors
CO Assoc. of Plumbing-Heating-Cooling Contractors
Colorado Civil Justice League
Colorado Competitive Council
Colorado Concern
Denver Metro Chamber of Commerce
Denver South Economic Development Partnership
Douglas County Commissioners
Downtown Denver Partnership
Heating, Air-Conditioning, Refrigeration Professionals
Hope Communities
Housing Colorado
Independent Electrical Contractors
Metro Denver Economic Development Corp.
Metro Mayors Caucus
NAIOP Colorado
National Electrical Contractors
Sheet Metal & Air Conditioning Contractor

In addition, the coalition is joined by the following Colorado mayors:
Marc Williams, Arvada
Steve Hogan, Aurora
Sue Horn, Bennet
Dick McLean, Brighton
Rick Pilgrim, Bow Mar
Randy Ahrens, Broomfield
Jeffrey Huff, Castle Pines
Cathy Noon, Centennial
Doug Tisdale, Cherry Hills Village
Gale Christy, Columbine Valley
Sean Ford, Commerce City
Michael Hancock, Denver
Randy Penn, Englewood
Tony Carey, Frederick
Marjorie Sloan, Golden
Ron Rakowsky, Greenwood Village
Bob Murphy, Lakewood
Phil Cernanec, Littleton
Jim Gunning, Lone Tree
Joe Gerlach, Nederland
Joyce Thomas, Northglenn
Mike Waid, Parker
Dallas Hall, Sheridan
Herb Atchison, Westminster
Joyce Jay, Wheat Ridge

To follow the HOA's activities, you can visit its website, follow it on Twitter, or like it on Facebook. In addition to following the HOA, be sure to check back here to stay informed about the latest happenings on the legislative front.

Monday, October 27, 2014

KF-103 v. American Family Mutual Insurance: An Exception to the Four Corners Rule

In Colorado, the “complaint rule,” also known as the “four corners rule,” requires an insurer to provide a defense when an underlying complaint alleges any set of facts that may fall within an insurance policy. This can result in a situation where an insurer has a duty to defend although the underlying facts ultimately do not fall within the policy.
In KF-103 v. American Family Mutual Insurance, 2014 WL 4409876, District Court Judge Richard P. Matsch recognized an exception to the complaint rule.  In doing so, Judge Matsch determined that a court may look beyond the complaint to judicial orders preceding the filing of the complaint to determine whether an insurer has a duty to defend. Therefore, a party may not be able to assert unsupported facts in a complaint for the sole purpose of triggering an insurance policy.

KF 103 v. American Family arose out of an underlying easement dispute. In the underlying case, KF 103-CV, LLC (“KF 103”) purchased a piece of property from the Infinity Group. As a condition of the purchase agreement, Infinity Group was required to complete improvements to boundary streets and the intersection of Ski Lane and Sorpresa Lane.  Several adjoining property owners (the “neighbors”) objected to the modification of the intersection because it violated an express easement (the “easement”) that provided access to their properties.

On October 13, 2010, the district court judge issued oral rulings and findings, holding that the neighbors’ easement had been impaired by the modification of the intersection and that KF 103 had not sought to relocate the easement. The Court found that KF 103 acted intentionally, although not with malice, and in direct violation of Colorado common law. In October 2012, the Court ruled in favor of the neighbors on claims for trespass, civil conspiracy, and negligence, awarding damages accordingly.

During the relevant time period, American Family insured KF 103. KF 103 first notified American Family of the underlying easement dispute in January 2011. American Family denied KF 103’s initial request for coverage and subsequent requests claiming that the neighbors’ claims were all based on KF 103’s intentional conduct, which was not covered under its policy.  On September 10, 2013, KF 103 sued American Family seeking declaratory relief and damages. KF 103 asserted that the factual allegation in the neighbors’ negligence, negligent misrepresentation, and trespass claims triggered coverage under the complaint rule.

The Court found that the neighbors’ claims all involved intentional conduct on the part of KF 103. The fact that claims alleged by the neighbors’ were categorized as “negligent” and used such terms as “negligence,” “negligent failure,” and “legal duty” did not change the fact that the well-pleaded allegations were really claims arising out of KF 103’s intentional actions. Even if those facts pleaded unintentional actions, the Court already found that KF 103 knowingly violated the neighbors’ easement rights.

KF 103 argued that the complaint rule prevents the Court from considering earlier rulings and that the Court must rely on the claims as pleaded, therefore American Family owed KF 103 a defense.  The Court disagreed with KF 103, finding that it may consider its earlier rulings because they preceded the filing of the claims and do not undercut the purpose of the complaint rule. If the Court were to agree with KF 103’s argument, it would allow any plaintiff to merely recite language in a complaint that would trigger insurance coverage.

While the complaint rule is still the general rule, a court may look outside the four corners of a complaint when there have been prior judicial determinations. It is important when determining the extent of insurance coverage to consider whether any prior court rulings have been issued in the case and how they may contradict the claims or counterclaims asserted.

To learn more about the KF 103 v. American Family decision or construction law in Colorado, you can reach Zach McLeroy by e-mail at or by telephone at (303) 987-9816.

Thursday, October 16, 2014

Tuesday, August 12, 2014

David M. McLain, Esq. to Speak at the 2014 CLM Claims College

David McLain will be a speaker at the School of Construction.  The Claims College will be held from September 7-10 in Philadelphia, Pennsylvania.  Mr. McLain is a founding member of Higgins, Hopkins,McLain & Roswell, LLC, a firm which specializes in construction law and construction litigation throughout Colorado.  Mr. McLain received his undergraduate degree from Colorado State University, graduating cum laude, and his law degree from the University of Denver, College of Law.  Mr. McLain completed the Claims and Litigation Management Alliance Litigation Management Institute, earning the designation from that organization as a Certified Litigation Management Professional. He has a general civil litigation practice with an emphasis on the defense of complex construction lawsuits on behalf of developers and general contractors.  As a result of the experience gained by defending some of Colorado’s largest residential construction defect lawsuits, developers, general contractors, and subcontractors seek out Mr. McLain to consult on risk avoidance and risk management strategies.  Currently among his clients are several of the state’s largest home builders, regional and custom builders, and numerous insurance carriers.  Mr. McLain is an AV® Preeminent™ Peer Review Rated attorney by Martindale-Hubbell and is a regular speaker at local, regional, and national seminars regarding construction defect litigation in Colorado.

About the CLM
The Claims and LitigationManagement Alliance (CLM) promotes and furthers the highest standards of claims and litigation management and brings together the thought leaders in both industries. CLM’s Members and Fellows include risk and litigation managers, insurance and claims professionals, corporate counsel, outside counsel and third party vendors. The CLM sponsors educational programs, provides resources and fosters communication among all in the industry. To learn more about the CLM, please visit

Susan Wisbey-Smith, Communications Manager
Claims and Litigation Management Alliance
(847) 317-9103

Thursday, July 31, 2014

When Can a General Contractor’s Knowledge be Imputed to a Developer?

The Colorado Court of Appeals recently handed down an opinion clarifying when the knowledge of a general contractor can be imputed to a developer. In the case of Jehly v. Brown, 327 P.3d (Colo. App. 2013), the Court of Appeals held that a developer cannot be held liable for fraudulent concealment when the developer has no actual knowledge of the fact or facts allegedly being concealed even if the general contractor had knowledge.

In this case, Brown, the developer, owned real property in Teller County and hired a general contractor to build a single-family house. Sometime before or during the construction, the general contractor became aware that part of the home site was located in a designated floodplain.  Although the general contractor was aware that part of the home site was located in a floodplain, he continued to build the home without informing Brown of the floodplain designation.

Once the home was complete, Brown sold the property to the Jehlys. Brown completed a Seller’s Property Disclosure Form regarding the condition of the house and property, but failed to identify that the home site was located in a governmentally designated floodplain.

Approximately five years after purchasing the home, heavy rains caused severe flooding and damage to the basement. The Jehlys sued Brown for fraudulent concealment, alleging that he fraudulently concealed knowledge of the floodplain in order to entice the Jehlys to purchase the property. The Jehlys asserted that the general contractor’s knowledge that the home site was located in a designated floodplain should be imputed to Brown. The trial court ruled in Brown’s favor, finding that the Jehlys failed to show Brown had any actual knowledge that the home site was located in a floodplain.

On appeal, the Court of Appeals upheld the trial court’s ruling that the general contractor’s knowledge cannot be imputed to Brown to support a claim of fraudulent concealment.  The Court of Appeals in its ruling stated that “in the context of a fraudulent concealment claim, knowledge of the information by the agent, when not communicated to the principal, is not deemed to be that of the principle.” Id.  The Court further added “when an agent has information that he has a duty to disclose, the principal may be liable except where actual knowledge is important.” Id.

It is important to note that while the Court held that a general contractor’s knowledge cannot be imputed to a developer in the context of a fraudulent concealment claim, this result would not follow for causes of action that lack an actual knowledge requirement.  A court could impute the general contractor’s knowledge to a developer under a negligence based claim or other claim where actual knowledge is not required. Therefore, it is important for developers to stay apprised of such information and not merely turn a blind eye in hopes of claiming they didn’t have actual knowledge.

To learn more about the Jehly v. Brown decision or construction law in Colorado, you can reach Zach McLeroy by e-mail at or by telephone at (303) 987-9816.


The information contained in this blog is provided for informational purposes only. It is not legal advice and should not be construed as providing legal advice on any subject matter.