Dave McLain named Barrister’s Best Construction Defects Lawyer for Defendants for 2019

The attorneys and staff at Higgins, Hopkins, McLain & Roswell are proud to announce that Law Week Colorado named Founding Member Dave McLain as the 2019 People’s Choice for Best Construction Defects Lawyer for Defendants.  According to the publication:

Law Week Colorado asked its readership to weigh in on the best attorneys in just about every practice area we could think of.  We received hundreds of responses and sifted through the votes for each category to determine the “People’s Choice” winner – the top attorney in each practice area according to other attorneys.  And then we handed it to the “Barrister” (the hive mind of Law Week staff, supplemented by public votes and a healthy dose of additional research) to determine the Barrister’s Choice. 

In recognizing Mr. McLain this year, Law Week Colorado stated:

Previously appearing in Law Week’s 2015 Barrister’s Best issue [in which he was recognized as the Barrister’s Choice as Best Construction Defects Lawyer for Defendants], David McLain participates in numerous speaking engagements on construction defects claims and is seen as a leader in the field.  His extensive experience over the last two decades of practice speaks for itself.

In response to the recognition, Founding Member Sheri Roswell stated: “David has long been admired by colleagues and co-workers for his depth of knowledge and commitment to excellence in serving the legal needs of the construction industry.  It is wonderful to see David’s skill and dedication recognized by peers in the community; there is no one more deserving of the honor.”

Higgins, Hopkins, McLain & Roswell exists to embody and exemplify the principles of service and stewardship.  In everything we do, we focus on serving our clients selflessly and to the best of our ability.  The firm is highly regarded for its expertise in construction law and the litigation of construction related claims, including the defense of large and complex construction defect matters. In addition to their construction law background, HHMR's attorneys are well versed and experienced in tort, contract, property and general casualty litigation ranging from products liability to personal injury and premises liability claims.

Dreyer v. Am. Natl. Prop. & Cas. Co. Or: Do Not Enter into Nunn-Agreements for Injuries that Occurred After Expiration of the Subject Insurance Policy

While Nunn-Agreements[1] may be appealing for both plaintiffs and defendants where an insurer unreasonably fails to defend a lawsuit, a recent opinion from The Honorable Marcia Krieger in the United States District Court of Colorado[2] (“Opinion”) demonstrates the importance of first confirming that there exists a viable insurance claim before proceeding with such a Nunn- Agreement.

The facts giving rise to the Opinion were as follows. In March 2015, a Homeowner couple (the “Homeowners”) suffered damages to their home resulting from a brushfire. Fortunately, the Homeowners were insured, they submitted their claim to their homeowners’ insurance carrier which was in effect at the time of the brushfire (the “Insurance Carrier”), and the Insurance Carrier paid the claim. Ostensibly as part of the Homeowners’ remediation efforts to their home they removed a large bush which left a hole in the ground.  After paying the claim, in August 2015 the Insurance Carrier cancelled or elected not to renew the Homeowners’ policy. In October 2015, a repairman working on the Home (the “Repairman”) was injured after his ladder fell over allegedly because of the hole in the ground caused by the bush that had been removed.

As a result of injuries caused by the fall from the ladder, the Repairman brought suit against the Homeowners. In response to the Repairman’s claim, the Homeowners again tendered to their Insurance Carrier. This time, however, the Insurance Carrier denied coverage on the basis that the Repairman’s injuries occurred after the expiration of the relevant policy. Without insurance coverage, the Homeowner’s entered into a Nunn-Agreement with the Repairman, conceding liability, and assigning any claims they might have had against the Insurance Carrier in lieu of execution of any judgment against the Homeowners.

The Repairman, as an assignee of the Homeowners, brought a number of claims predicated generally on breach of the relevant insurance contract against the Insurance Carrier. In turn, the Insurance Carrier moved to dismiss the action arguing that the injury occurred after the expiration of the relevant policy and thus was not a covered loss. 

With this background Judge Krieger was tasked with evaluating whether the fall from the ladder (which occurred after the expiration of the policy) or the brushfire (which occurred within the policy period) should constitute the “occurrence” under the insurance policy.

In making her determination, Judge Krieger noted that the policy provided coverage for injuries resulting from an “occurrence,” which the policy defined as “an accident. . . result[ing] in bodily injury or property damage during the policy period.” Judge Krieger further noted that the plain language of the contract made clear that the “occurrence” – the precipitating event that triggers coverage – is the “accident” that results in the injury. Because Judge Krieger concluded that the accident that resulted in the Repairman’s injury was him falling off the ladder, not the brushfire, Judge Krieger determined that there existed no insurance coverage and no viable claims for breach of the subject insurance contract. Based on the foregoing, Judge Krieger dismissed all of the Repairman’s claims.

In summary, careful practitioners should confirm there exists a viable insurance claim before proceeding with a Nunn-Agreement. 

For additional information regarding Nunn-Agreements or about construction defect litigation in Colorado, generally, you can reach Jean Meyer by telephone at (303) 987-9815 or by e-mail at meyer@hhmrlaw.com.

---

[1] Nunn v. Mid-Century Ins. Co., 244 P.3d 116 (Colo. 2010).

[2] Dreyer v. Am. Natl. Prop. & Cas. Co., 18-CV-03334-MSK-SKC, 2019 WL 3002927 (D. Colo. July 10, 2019)

Insurance Company’s Reservation of Rights Letter Negates its Interest in the Litigation

The Colorado Court of Appeals held that an insurance company, which issues a reservation of rights letter to its insured, loses its interest in the litigation, pursuant to C.R.C.P. 24(a)(2), when the insured settles the claims and assigns the bad faith action against the insurance company to the plaintiff.  Bolt Factory Lofts Owners Association, Inc. v. Auto-Owners Insurance Company, 2019WL 3483901(Colo. App. 2019).

In a 2016 lawsuit in Denver District Court, 2016CV3360, the Bolt Factory Loft Owners Association, Inc. (“Association”) asserted construction defect claims against six contractors.  Two of those contractors then asserted claims against other subcontractors, including Sierra Glass Co., Inc. (“Sierra Glass”).  After multiple settlements, the only remaining claims were those the Association, as assignee of the two contractors, asserted against Sierra Glass.

Auto-Owners Insurance Company (“AOIC”) issued policies to Sierra Glass and defended it under a reservation of rights.  The policy afforded AOIC the right to defend Sierra Glass, and it required Sierra Glass to cooperate in the defense of the legal action.  The Association presented a settlement demand of $1.9 million to Sierra Glass, which AOIC refused to pay.  To protect itself from an excess judgment that AOIC might not have paid, Sierra Glass entered into an agreement with the Association whereby Sierra Glass would refrain from offering a defense at trial and assign its bad faith claim against AOIC to the Association in exchange for the Association’s promise that it would not pursue recovery against Sierra Glass of any judgment entered against it at trial.  Such agreements, known as Bashor or Nunn Agreements, are allowed in Colorado.  Nunn v. Mid-Century Insurance Co., 244 P.3d 116 (Colo. 2010).  Therefore, Sierra Glass was entitled to protect itself in the face of AOIC’s potential denial of coverage and refusal to settle.  Bolt Factory Lofts, at ¶ 15.

AOIC learned of the Sierra Glass agreement with the Association the day before the trial was to begin.  The fifteen-day jury trial was reduced to a two-day bench trial as Sierra Glass would no longer put on any defense against the Association’s claims.  AOIC moved to intervene, continue the trial, contest the settlement agreement, and protect its rights under the insurance policies.  The trial court held that the agreement was valid under Nunn and denied AOIC’s motion to intervene.  Following the two-day trial, the trial court entered judgment in favor of the Association, and against Sierra Glass, for $2,489,021.91.

On July 27, 2018, AOIC timely appealed the trial court’s judgment, discussed below.  Prior to that, on June 18, 2018, the Association obtained a writ of garnishment against AOIC in the Denver District Court, which AOIC removed to the U.S. District Court of Colorado, 18CV01725, on July 9, 2018.  AOIC sought a declaration in the garnishment action that that Sierra Glass breached the policy by failing to cooperate with AOIC and that the judgment obtained in the underlying lawsuit was not enforceable against AOIC.  In response, the Association asserted counterclaims against AOIC for: 1) breach of contract; 2) statutory unreasonable denial of payment of a benefit; and 3) common law bad faith.  AOIC argued that the Association’s counterclaims were contingent on the outcome of the appeal in the underlying lawsuit and must be dismissed because they were not ripe.    Judge Brooke Jackson agreed, however, he also found that AOIC’s claims were not ripe as they also relied, in large part, on the trial court’s judgment.  Judge Jackson noted that the ripeness doctrine asks whether a controversy is certain and not contingent on future events.  He found that if AOIC prevailed on the appeal by successfully vacating the judgment, part of the declaratory relief it requested would no longer be necessary.  Thus, the claims were not ripe for AOIC or the Association, and this case was dismissed in its entirety, without prejudice.

With respect to the appeal of the trial court’s judgment, the Colorado Court of Appeals, Division VI (18CA1201), affirmed the trial court’s denial of AOIC’s motion to intervene.  C.R.C.P. 24(a)(2) provides for intervention as a matter of right when:

1.         The applicant claims an interest in the subject matter of the litigation;

2.         Disposition of the action may impair or impede the applicant’s ability to protect that interest; and

3.         The applicant’s interest is not adequately represented by existing parties.

Failure to satisfy one element of this rule precludes a motion to intervene as of right.  Bolt Factory Lofts, at ¶ 10.[1]  The appellate court found that AOIC failed to satisfy the first element and affirmed the trial court’s order without considering the other two elements. 

It was undisputed that AOIC reserved the right to deny coverage.  Id. at ¶ 15.  Thus, its interest in the litigation was contingent on the liability phase of the proceedings.  While the existence of an interest should be determined in a liberal manner, if the interest is contingent, it may be insufficient to warrant intervention.  Id. at ¶¶ 12-13.[2]  Where an insurer reserves the right to deny coverage, “the insurer’s interest in the liability phase of the proceeding is contingent on the resolution of the coverage issue.”  Id. at ¶ 14.[3]

Allowing AOIC to intervene to protect its contingent interest would allow it to interfere with and in effect control the defense.  Such intervention would unfairly restrict Sierra Glass, which faced the very real risk of an uninsured liability, and grant AOIC a double bite at escaping liability.  Id.[4]

Conclusion

An insurance company must consider the risks when it has a reservation of rights and denies a settlement for its insured within the policy limits.  AOIC lost control of the defense because it lost its interest in the litigation with its reservation of rights.  Once the claims were assigned, the judgment increased from a potential $1.9 million settlement to a $2.4 million judgment.  If there is a finding the insurance company denied the Sierra Glass claim in bad faith, compensatory, economic, and noneconomic damages are available, as well as punitive damages, not to exceed the amount of actual damages, to punish the insurer and deter wrongful conduct by other insurers.  C.R.S. § 13-21-102(1)-(3).  If bad faith is found, AOIC could pay as much as $4.8 million.  This type of reward creates an incentive for plaintiffs, like the Association, to accept an assignment of a claim, as contemplated by Nunn, which protects the insured from an excess judgment.

---

[1] Citing Diamond Lumber, Inc. V. H.C.M.C., Ltd., 746 P.2d 76, 78 (Colo. App. 1987).

[2] Citing Feigin v. Alexa Group., Ltd., 19 P.3d 23, 28 (Colo. 2001).

[3] Citing Travelers Indem. Co., v. Dingwell, 844 F.2d 629, 628 (1^st Cir. 1989).

[4] Citing Dingwell, supra, at 639.

For additional information regarding Bolt Factory Lofts Owners Association, Inc. v. Auto-Owners Insurance Company or about construction defect litigation in Colorado, generally, you can reach Frank Ingham by telephone at (303) 653-0046 or by e-mail at ingham@hhmrlaw.com.

Admissibility of Expert Opinions in Insurance Bad Faith Trials

In 2010, Hansen Construction was sued for construction defects and was defended by three separate insurance carriers pursuant to various primary CGL insurance policies.[i]  One of Hansen’s primary carriers, Maxum Indemnity Company, issued two primary policies, one from 2006-2007 and one from 2007-2008.  Everest National Insurance Company issued a single excess liability policy for the 2007-2008 policy year, and which was to drop down and provide additional coverage should the 2007-2008 Maxum policy become exhausted.  In November 2010, Maxum denied coverage under its 2007-2008 primarily policy but agreed to defend under the 2006-2007 primarily policy.  When Maxum denied coverage under its 2007-2008 primary policy, Everest National Insurance denied under its excess liability policy. 

In 2016, pursuant to a settlement agreement between Hansen Construction and Maxum, Maxum retroactively reallocated funds it owed to Hansen Construction from the 2006-2007 Maxum primary policy to the 2007-2008 Maxum primary policy, which became exhausted by the payment.  Thereafter, Hansen Construction demanded coverage from Everest National, which continued to deny the claim.  Hansen Construction then sued Everest National for, among other things, bad faith breach of contract.

In the bad faith action, both parties retained experts to testify at trial regarding insurance industry standards of care and whether Everest National’s conduct in handling Hansen Construction’s claim was reasonable.  Both parties sought to strike the other’s expert testimony as improper and inadmissible under Federal Rule of Evidence 702.

In striking both sides’ expert opinions, the U.S. District Court Judge Christine Arguello set forth the standards for the admissibility of expert opinions in Federal Court:

Under Daubert, the trial court acts as a “gatekeeper” by reviewing a proffered expert opinion for relevance pursuant to Federal Rule of Evidence 401, and reliability pursuant to Federal Rule of Evidence 702.[ii]  The proponent of the expert must demonstrate by a preponderance of the evidence that the expert’s testimony and opinion are admissible.[iii]  This Court has discretion to evaluate whether an expert is helpful, qualified, and reliable under Rule 702.[iv]

Federal Rule of Evidence 702 governs the admissibility of expert testimony. Rule 702 provides that a witness who is qualified as an expert by “knowledge, skill, experience, training, or education” may testify if:

(a) the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;

(b) the testimony is based on sufficient facts or data;

(c) the testimony is the product of reliable principles and methods; and

(d) the expert has reliably applied the principles and methods to the facts of the case.

Fed. R. Evid. 702.

In deciding whether expert testimony is admissible, the Court must make multiple determinations. First, it must first determine whether the expert is qualified “by knowledge, skill, experience, training, or education” to render an opinion.[v]  Second, if the expert is sufficiently qualified, the Court must determine whether the proposed testimony is sufficiently “relevant to the task at hand,” such that it “logically advances a material aspect of the case.”[vi]  “Doubts about whether an expert’s testimony will be useful should generally be resolved in favor of admissibility unless there are strong factors such as time or surprise favoring exclusions.”[vii] 

Third, the Court examines whether the expert’s opinion “has ‘a reliable basis in the knowledge and experience of his [or her] discipline.’”[viii]  In determining reliability, a district court must decide “whether the reasoning or methodology underlying the testimony is scientifically valid.”[ix]  In making this determination, a court may consider: “(1) whether a theory has been or can be tested or falsified, (2) whether the theory or technique has been subject to peer review and publication, (3) whether there are known or potential rates of error with regard to specific techniques, and (4) whether the theory or approach has general acceptance.”[x] 

The Supreme Court has made clear that this list is neither definitive nor exhaustive.[xi]  In short, “[p]roposed testimony must be supported by appropriate validation—i.e., ‘good grounds,’ based on what is known.”[xii] 

The requirement that testimony must be reliable does not mean that the party offering such testimony must prove “that the expert is indisputably correct.”[xiii]  Rather, the party need only prove that “the method employed by the expert in reaching the conclusion is scientifically sound and that the opinion is based on facts which sufficiently satisfy Rule 702’s reliability requirements.”[xiv]  Guided by these principles, this Court has “broad discretion” to evaluate whether an expert is helpful, qualified, and reliable under the “flexible” standard of Fed. R. Evid. 702.[xv] 

With respect to helpfulness of expert opinions, Judge Arguello explained:

Federal Rule of Evidence 704 allows an expert witness to testify about an ultimate question of fact.[xvi]  To be admissible, however, an expert’s testimony must be helpful to the trier of fact.[xvii]  To ensure testimony is helpful, “[a]n expert may not state legal conclusions drawn by applying the law to the facts, but an expert may refer to the law in expressing his or her opinion.”[xviii] 

“The line between a permissible opinion on an ultimate issue and an impermissible legal conclusion is not always easy to discern.”[xix]  Permissible testimony provides the jury with the “tools to evaluate an expert’s ultimate conclusion and focuses on questions of fact that are amenable to the scientific, technical, or other specialized knowledge within the expert’s field.”[xx]

However, “an expert may not simply tell the jury what result it should reach....”[xxi]  Further, “expert testimony is not admissible to inform the trier of fact as to the law that it will be instructed to apply to the facts in deciding the case.”[xxii]  Similarly, contract interpretation is not a proper subject for expert testimony.[xxiii] 

Finding that all three of the experts intended to offer opinions that were objectionable on the basis of helpfulness, Judge Arguello granted both parties’ motions to exclude the expert testimony of the opposing experts. 

For additional information about the Hansen Construction v. Everest National Insurance Company matter, or construction litigation in Colorado, you can reach Dave McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

---

[i] Hansen Construction, Inc. v. Everest National Insurance Company, 2019 WL 2602510 (D. Colo. June 25, 2019).

[ii] See Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589–95 (1993); see also Goebel v. Denver & Rio Grande W. R.R. Co., 215 F.3d 1083, 1087 (10^th Cir. 2000).

[iii] United States v. Nacchio, 555 F.3d 1234, 1241 (10^th Cir. 2009); United States v. Crabbe, F. Supp. 2d 1217, 1220–21 (D. Colo. 2008); Fed. R. Evid. 702 advisory comm. notes.

[iv] See Goebel, 214 F.3d at 1087; United States v. Velarde, 214 F.3d 1204, 1208–09 (10^th Cir. 2000).

[v] Nacchio, 555 F.3d at 1241.

[vi] Norris v. Baxter Healthcare Corp., 397 F.3d 878, 884, 884 n.2 (10^th Cir. 2005).

[vii] Robinson v. Mo. Pac. R.R. Co., 16 F.3d 1083, 1090 (10^th Cir. 1994) (quotation omitted).

[viii] Norris, 397 F.3d at 884, 884 n.2 (quoting Daubert, 509 U.S. at 592).

[ix] Id. (quoting Daubert, 509 U.S. at 592–93).

[x] Norris, 397 F.3d at 884 (citing Daubert, 509 U.S. at 593–94).

[xi] Kumho Tire Co. v. Carmichael, 526 U.S. 137, 150 (1999).

[xii] Daubert, 509 U.S. at 590.

[xiii] Bitler v. A.O. Smith Corp., 400 F.3d 1227, 1233 (10th Cir. 2004) (quoting Mitchell v. Gencorp Inc., 165 F.3d 778, 781 (10th Cir. 1999)).

[xiv] Id.

[xv] Velarde, 214 F.3d at 1208–09; Daubert, 509 U.S. at 594.

[xvi] United States v. Richter, 796 F.3d 1173, 1195 (10^th Cir. 2015).

[xvii] Fed. R. Evid. 702.

[xviii] Richter, 796 F.3d at 1195 (quoting United States v. Bedford, 536 F.3d 1148, 1158 (10^th Cir. 2008)); see, e.g., Killion v. KeHE Distribs., LLC, 761 F.3d 574, 592 (6^th Cir. 2014) (report by proffered “liability expert,” which read “as a legal brief” exceeded scope of an expert’s permission to “opine on and embrace factual issues, not legal ones.”).

[xix] Richter, 796 F.3d at 1195 (quoting United States v. McIver, 470 F.3d 550, 562 (4^th Cir. 2006)).

[xx] Id. (citing United States v. Dazey, 403 F.3d 1147, 1171–72 (10^th Cir. 2005) (“Even if [an expert’s] testimony arguably embraced the ultimate issue, such testimony is permissible as long as the expert’s testimony assists, rather than supplants, the jury’s judgment.”)).

[xxi] Id. at 1195–96 (quoting Dazey, 403 F.3d at 1171).

[xxii] 4 Jack B. Weinstein et al., Weinstein’s Federal Evidence § 702.03[3] (supp. 2019) (citing, e.g., Hygh v. Jacobs, 961 F.2d 359, 361–62 (2d Cir. 1992) (expert witnesses may not compete with the court in instructing the jury)).

[xxiii] Id. (citing, e.g., Breezy Point Coop. v. Cigna Prop. & Cas. Co., 868 F. Supp. 33, 35–36 (E.D.N.Y. 1994) (expert witness’s proposed testimony that failure to give timely notice of loss violated terms of insurance policy was inadmissible because it would improperly interpret terms of a contract)).