United States District Court Confirms That Insurers Can Be Held Liable Under The CCPA.

In D.R. Horton, Inc.-Denver v. The Travelers Indem. Co. of Am., 10-CV-02826-WJM-KMT, 2012 WL 527204 (D. Colo. Feb. 16, 2012), the court was asked to rule on Travelers’[1]  motion to dismiss D.R. Horton, Inc. – Denver’s (“DRH”) claim that Travelers violated the Colorado Consumer Protection Act (“CCPA”).

In the underlying construction defect case (“CD case”), DRH, as the developer and general contractor of a construction project, tendered the defense of the CD case to certain subcontractors and to Travelers as an insurer to those subcontractors. Travelers accepted the duty to defend DRH. DRH hired counsel to defend it, and the attorney fees and costs of suit were billed to Travelers. However, for a period of over five years, Travelers failed to actually pay any portion of the defense of DRH. Finally, on October 31, 2008, Travelers offered checks for payment of only 4% of the costs and fees incurred. DRH then returned the checks to Travelers and provided Travelers with authority to support its position that the amounts in Travelers’ checks were inadequate. Thereafter, Travelers dug its heels in, and resubmitted the same checks.

DRH was then forced to file a coverage action against Travelers for declaratory judgment, breach of contract, bad faith breach of insurance contract, and deceptive trade practices under the CCPA. In its motion to dismiss DRH’s CCPA claim, Travelers’ argued that DRH failed to plead specific facts that Travelers engaged in a deceptive trade practice under C.R.S. § 6-1-105, and DRH failed to plead sufficient facts showing that Travelers’ actions significantly affect the public – a necessary element of a CCPA claim. 

Travelers’ first argument was that DRH had not met the heightened “particularity” pleading standard of F.R.C.P. 9(b). The court listed the following facts that were plead in DRH’s complaint as fulfilling DRH’s particularity requirement: 1) Travelers did not pay any of DRH’s defense costs for over five years; 2) during that five-year period, Travelers sent DRH letters reaffirming Travelers’ defense obligations; 3) Travelers knew or should have known, that its method of calculating and allocating payments was directly contrary to controlling law; and 4) Travelers re-tendered the inadequate checks after being informed by DRH that the payments, as allocated, violated controlling law. The court also noted that DRH’s complaint amply detailed the payments made and the particular persons receiving correspondence, along with dates of the correspondence. For the foregoing reasons, the court held that DRH met the F.R.C.P. 9(b) pleading standard.

Travelers’ next arguments were that its alleged conduct of paying less in defense fees and costs than controlling law requires does not violate any of the specific provisions of C.R.S. § 6-1-105, and that breach of an insurance contract in bad faith does not implicate the CCPA. The court quickly dismissed these arguments as lacking merit based on the holding in Showpiece Homes Corp. v. Assurance Company of America, 38 P.3d 47 (Colo. 2001). The Showpiece court expressly held that insurance companies can be held liable under the CCPA, and that the enumerated deceptive practices listed within the CCPA statute are not exhaustive. Id. at 54.

Finally, Travelers argued that DRH had not plead sufficient facts to prove that Travelers’ actions “significantly affect the public.” A plaintiff must prove that the deceptive trade practice sufficiently impacts the public to maintain a CCPA claim. See Rhino Linings USA, Inc. v. Rocky Mountain Rhino Lining, Inc., 62 P.3d 142 (Colo. 2003). However, as the court properly held, that standard does not apply at the pleadings stage under F.R.C.P. 9(b). The court found that DRH’s pleadings were sufficient to state a claim of public impact and overcome any motion to dismiss at this early stage of the litigation.

There is a lesson to be learned here for insurance companies doing business in Colorado. The CCPA gives rise to damages independent of breach of contract and bad faith claims, and playing games with defense and indemnity obligations can potentially lead to larger liabilities down the road.


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

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[1] Travelers is used as a blanket name in this blog entry for the following defendants in this action: 1) The Travelers Indemnity Company of America; 2) Travelers Indemnity Company; 3) Travelers Indemnity Company of Connecticut; 4) St. Paul Fire and Marine Insurance Company; and 5) Charter Oak Fire Insurance Company.