Colorado Court of Appeals holds that insurance companies owe duty of prompt and effective communication to claimants and repair subcontractors.

In Dunn v. American Family Insurance, 09CA2173, 2010 WL 4791948 (Colo. App. Nov. 24, 2010), the Dunns reported a claim to American Family on their homeowners insurance policy after sewer and water backup caused sewage to flood their basement. American Family gave the Dunns contact information for a contractor (ICA) to remediate the flooding. However, ICA was unsuccessful and sewage began to infiltrate the Dunns’ HVAC system. Subsequently, black mold was detected in the HVAC system, the Dunns suffered health and respiratory problems, and they soon after vacated the home. The Dunns hired and fired two more contractors for unsatisfactory work throughout the winter before hiring a fourth to finish the job. Because the home remained vacant and unheated throughout the winter, the water pipes ruptured. The mold spread throughout the entire home and all of the contents needed to be replaced, which amounted to a claim of $340,000 on the policy.

American Family agreed to pay the full $340,000. However, the Dunns brought suit claiming that American Family breached the implied duty of good faith and fair dealing by: 1) failing to screen ICA for expertise; 2) failing to screen ICA for liability insurance coverage; 3) failing to monitor ICA’s work; 4) failing to advise them that flooding can cause further damage, including freezing pipes and mold; and, 5) failing to adequately and promptly communicate with them and remediation subcontractors in the course of investigating and handling their claim.

The trial court found no duty owed by American Family beyond adjustment and timely payment of claims. Because American Family paid timely and in full, they dismissed all of the Dunns’ claims. However, the Court of Appeals reversed in part.

In doing so, the Court expressly held that an insurance company has no duty to screen subcontractors it suggests for quality or insurance, monitor the work performed by subcontractors, or advise an insured of the possibility of likely further damage after an initial claim. Id. at *3. However, as a matter of first impression, the court held that American Family “had a duty to promptly and effectively communicate with anyone it was reasonably aware had or legitimately needed information pertaining to the handling of plaintiffs’ claim” (e.g., subcontractors performing the work). Id. at *5-6. The court then remanded the case to the trial court with instructions to prove that American Family breached the duty to communicate; and, that the breach of that duty caused further damages to the Dunns. Id. at *6.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

End of Colorado Senate Bill 11-068

We have been following Senate Bill 11-068, which sought to eliminate the significant public impact component of claims under the Colorado Consumer Protection Act (the “CCPA”). That bill has now died in a House committee. The original version of the bill would have created a rebuttable presumption that a significant public impact occurred where a plaintiff offers evidence of a deceptive trade practice, and the bill was revised to completely do away with the element of a significant public impact in a CCPA cause of action. On February 22, SB 11-068 passed out of the Senate, and on February 25, the bill was introduced into the House, where it was assigned to the State, Veterans, and Military Affairs Committee. Today, on a 5-4 vote, the Committee moved to postpone indefinitely SB 11-068.

- Bret Cogdill

Analysis of the "owned property exclusion" under Panico v. State Farm

The U.S. Court of Appeals for the Tenth Circuit recently concluded that the “owned property exclusion” applied to bar coverage for claims of property damage. See Panico v. State Farm Fire and Cas. Co., 2011 WL 322830 (10th Cir. 2011). In Panico, the plaintiffs sold property in Aspen, Colorado to the Taylors, who sued the Panicos upon discovering the property was not as represented. After refusing to defend, the Panicos sued State Farm for breach of contract. The district court concluded that the Taylors’ claims were not covered under the Panicos’ insurance policies and granted summary judgment in State Farm’s favor. The U.S. Court of Appeals for the Tenth Circuit affirmed.

Mr. Panico built the house on the property as well as several additions to the house. As the Taylors lived in Florida, they primarily relied on their real estate agent and an inspector to ensure the property was acceptable. According to their complaint, the Taylors discovered that the house was “virtually uninhabitable due to serious design and construction defects, mold, rodents, and drainage problems.” Id. at *1. In their complaint, the Taylors asserted three claims for relief against the Panicos based upon misrepresentation and fraudulent concealment about the condition of the property.

The Panicos’ State Farm policy provided personal liability coverage for claims brought against an insured for bodily injury or property damage. The personal liability coverage provided:

If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence, we will:

1. pay up to our limit of liability for the damages for which the insured is legally liable; and

2. provide a defense at our expense by counsel of our choice.

Importantly, the Panicos’ State Farm personal liability coverage was subject to an exclusion for “property damage to property rented to, occupied or used by or in the care of any insured.” Id. at *2. Despite the inclusion of allegations concerning Ms. Taylor’s respiratory problems and illness requiring medical attention after exposure to the property, the court concluded that State Farm had no duty to defend because the Taylors did not bring bodily injury claims, and the property damage claims were subject to the owned property exclusion.

While the court acknowledged Colorado law required an insurer to provide a defense if the underlying complaint alleged any facts or claims that might fall “within the ambit of the policy,” the court distinguished the allegations in the Taylors’ complaint. In its analysis, the court stated:

However, this rule does not mean that the mere mention of one or two facts that could constitute part of a covered claim triggers coverage if it is clear that those facts are not part of any claim for relief. If there is no claim, there is no duty to defend.

Id. at *3.

The court explained that Colorado courts look beyond the labels attached to a claim to determine whether it is truly a covered claim. As the Taylors’ complaint did not seek relief for bodily injury, State Farm’s duty to defend was not triggered.

With regard to the Taylors’ claims for property damage, the court indicated that said claims do not trigger a duty to defend because they are subject to the owned property exclusion. The court indicated that the Panicos cannot avoid the owned property exclusion whether it looks at the Panicos’ alleged misrepresentations concerning the property, their alleged negligent construction of the property, or their alleged negligent maintenance of the property. “All three would have taken place while the Panicos owned the property.” Id. at *4.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

HHMR is honored to have one of its attorneys named as a 2011 Colorado Super Lawyer and two others named as Rising Stars.

Higgins, Hopkins, McLain & Roswell ("HHMR") is happy to announce that one of its attorneys has been selected as on of Colorado's Super Lawyers by Super Lawyers magazine and that two other lawyers have been recognized as "Rising Stars."

David B. Higgins was chosen to receive the honor of being named as a 2011 Colorado Super Lawyer, recognizing him as one of the top-performing construction lawyers in Colorado.  In addition, two other HHMR lawyers, David M. McLain and Derek Lindenschmidt, were named as "Rising Stars" by the magazine, a distinction that recognizes up-and-comers in the industry for their outstanding service and accomplishments.

HHMR's expertise is in the field of construction law and the litigation of construction claims.  The firm's team of high profile construction attorneys is consistently sought out by developers, general contractors, and insurers not only to litigate construction claims, but also to consult on risk avoidance and risk management strategies. 

For more information visit the web site at http://www.hhmrlaw.com/, or call (303) 987-9870.

Follow Up on Colorado Senate Bill 11-068: Unwarranted Changes to the Colorado Consumer Protection Act

In a prior Colorado Construction Litigation blog entry, we presented concerns with Senate Bill 11-068, which seeks to eliminate the significant public impact component of claims under the Colorado Consumer Protection Act (the “CCPA”). On February 22, 2011, the Senate passed the bill in a 19 to 15 vote. As the bill made its way through the Senate, it was amended to remove the provisions that would have granted the Attorney General the unilateral power to add to the laundry list of acts that constitute deceptive trade practices. While the original version of the bill would have created a rebuttable presumption that a significant public impact occurred where a plaintiff offers evidence of a deceptive trade practice, recent revisions completely do away with the element of a significant public impact in a CCPA cause of action. The revised SB11-68 reads in part:

6-1-113.5. Private cause of action - elements – legislative declaration.
(1) TO PREVAIL IN A CLAIM BROUGHT UNDER SECTION 6-1-113, A PLAINTIFF SHALL ESTABLISH THAT:
(a) THE DEFENDANT ENGAGED IN AN UNFAIR OR DECEPTIVE TRADE PRACTICE;
(b) THE CHALLENGED PRACTICE OCCURRED IN THE COURSE OF THE DEFENDANT'S BUSINESS, VOCATION, OR OCCUPATION;
(c) THE PLAINTIFF SUFFERED INJURY IN FACT TO A LEGALLY PROTECTED INTEREST; AND
(d) THE CHALLENGED PRACTICE CAUSED THE PLAINTIFF'S INJURY.

(2) THE GENERAL ASSEMBLY DECLARES THAT ITS PURPOSE IN CREATING THIS SECTION IS TO ELIMINATE THE REQUIREMENT, ARTICULATED BY THE COLORADO SUPREME COURT IN HALL V. WALTER, 969 P.2D 224 (1998), THAT, TO PROVE A PRIVATE CAUSE OF ACTION UNDER THIS ARTICLE, A PLAINTIFF MUST ESTABLISH THAT A DEFENDANT'S CHALLENGED PRACTICE SIGNIFICANTLY IMPACTS THE PUBLIC AS ACTUAL OR POTENTIAL CONSUMERS OF THE DEFENDANT'S GOODS, SERVICES, OR PROPERTY.

It is doubtful how this bill would increase consumer protection or further deter unscrupulous vendors from conducting deceptive trade practices. Awards of treble damages and attorney fees have long been a feature of the CCPA. As discussed in our prior blog entry on this topic, the requirement for a plaintiff to show a significant public impact was a long established part of the CCPA and case law, which differentiates a CCPA cause of action from other available causes of action such as misrepresentation or simply breach of contract. If it becomes law, SB 11-068 may turn far more ordinary disputes with a business regarding goods, services, or property into CCPA actions.

On February 22, SB 11-068 passed out of the Senate.  On February 25th, the bill was introduced into the House, where it was assigned to the State, Veterans, and Military Affairs Committee.

For additional information regarding construction litigation in Colorado, visit http://www.hhmrlaw.com/, or contact Bret Cogdill at (303) 653-0046 or by e-mail at cogdill@hhmrlaw.com.