When Does a Claim Against an Insurance Carrier for Failing to Defend Accrue?

The following is an update on our December 20, 2010 article regarding United States Fire Insurance Company v. Pinkard Construction Company, Civil Action No. 09-CV-01854-MSK-MJW, and its underlying dispute, Legacy Apartments v. Pinkard Construction Company, Case No. 2003 CV 703, Boulder County Dist. Ct.  That article can be found here. 

The present action, St. Paul Fire and Marine Insurance Co., et al. v. The North River Insurance Co., et al., Civil Action No. 10-CV-02936-MSK-CBS, encompasses the coverage battle that ensued between Pinkard’s insurers, Travelers Indemnity Company of America (“Travelers”) and United States Fire Insurance Company (“USFI”), following the settlement of Legacy’s construction defect claims against Pinkard.  A short history of the underlying facts is as follows:

In 1995, Pinkard constructed the Legacy Apartments housing complex in Longmont, Colorado. Following construction, Legacy notified Pinkard of water leaks associated with various elements of construction.  Legacy ultimately filed suit against Pinkard in 2003, and would go on to clarify and amend its defect claims in 2004, 2006, and again in 2008. Following Pinkard’s notification of Legacy’s claims, USFI provided a defense to Pinkard, but Travelers refused to do so, on the purported basis that Legacy’s allegations did not implicate property damage under the terms of Travelers’ policy.  The case proceeded to trial in 2010 and settled during the jury’s deliberations.  Thereafter, both Travelers and USFI each contended that their settlement contributions exceeded their liability under the respective policies. They asserted claims against one another for contribution, indemnity, and subrogation. 

Among the claims, USFI asserted specifically that Travelers owed contribution towards Pinkard’s defense. In response, Travelers moved for summary judgment on the basis that its refusal to defend Pinkard was known to USFI as early as 2003, and thus, under the three-year statute of limitations provided by C.R.S. § 13-80-101, USFI’s claims became barred in 2006.  In reply, USFI argued that its claims were not stale, and in fact were continuing to accrue, under the “continuing wrong” doctrine, under which the cause of action and ensuing limitations run from the date of the last injury.

District Judge Marcia Krieger was not persuaded and determined that, under Colorado law, “the insurer’s [Travelers’] continued refusal to defend the insured constituted a series of breaches….for which the limitations period runs with each breach.”  Accordingly, Judge Krieger concluded, “a plaintiff can only sue on those breaches that occurred within the relevant limitation period.” Thus, whereas Travelers disclaimed its intention to defend Pinkard on multiple occasions, each disclaimer gave rise to a separate breach subject to a separate limitation period. This effectively limited USFI’s right to recover defense costs against Travelers, if any, for the three-year time period between January 2008 and 2011. 

Travelers separately contended that its policy coverage — and thus its defense obligation — was not triggered by Legacy’s allegations within the aforesaid time period because Legacy only alleged claims of faulty workmanship. In response, USFI argued that, in accordance with the Tenth Circuit Court of Appeals’ Greystone Const. Inc. v. National Fire & Marine Ins. Co., 661 F.3d 1272 (10^th Cir. 2011) decision, Legacy’s claims should be enough to trigger Travelers’ defense obligation, insofar as it was alleged that the apartments were damaged as a result of Pinkard’s failure to construct them in a workmanlike manner. 

Presently, because the Greystone decision was issued just a few weeks before the parties’ briefing on this topic, Judge Krieger appears inclined to allow the parties to submit additional briefing on Greystone’s impact on the sufficiency of Legacy’s defect allegations for the purpose of invoking coverage under Travelers’ policies.

Perhaps most importantly, Judge Krieger has posed questions with regard to other issues of law, including the retroactive application of Greystone, the timeframe from which a court should assess the legal aspects of a duty to defend, and even the mens rea of an insurance carrier that denies its defense obligation.  Whereas Travelers and USFI have an obvious interest in resolving the matter at hand, it is no stretch to say that Judge Krieger’s eventual resolution of these broader topics of law will have an enormous impact on defense coverage for contractors in the years to come.

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