Last April, the U.S. District Court for the District of
Colorado decided in an action for declaratory relief that the Colorado
Construction Defect Action Reform Act (“CDARA”) does not afford insurers the
right to separate notice, beyond that of the claimant to the construction
professional, of their duty to defend the insured.
This case, Auto-Owners Insurance Company v. High
Country Coatings, Inc., involves a dispute between a construction
professional, High Country Coatings (hereinafter “HCC”), and its insurer,
Auto-Owners Insurance Company (hereinafter “AOIC”). In 2012, HCC entered into a
subcontract with Brinkman Construction to install floor coatings on a concrete
floor in an airplane hangar. Soon after the work was complete, the flooring
bubbled and blistered. Brinkman demanded that HCC re-do the floors.
However, before HCC installed the new floor coatings, its
liability policy with AOIC terminated, and it entered into a new commercial
general liability policy with AOIC. After HCC’s second coating of the floor
resulted in bubbling and blistering, Brinkman’s insurer, Zurich, sent a letter
to HCC indicating that the owner of the aircraft hangar asserted construction
defect claims against Brinkman and HCC. Within days, HCC reported the claim to
its insurer, AOIC. Almost a year later, AOIC denied HCC’s claim because there
did not appear to be damage alleged outside of the scope of HCC’s work,
triggering certain exclusions.
In November 2016, Zurich sued HCC in the District Court for
Arapahoe County. AOIC appointed counsel to defend HCC in the Arapahoe County
action, while reserving the right to deny the claim. A month later, AOIC sued
HCC and Zurich in federal court, seeking a declaratory judgment that it was not
obligated to defend HCC in the Arapahoe County action. U.S. District Court
Judge Jackson found that AOIC did have a duty to defend HCC. Soon after, the
jury in the Arapahoe County action returned a verdict in favor of HCC.
AOIC responded by amending its federal complaint for
declaratory relief, claiming it owed no duty to defend HCC prior to the
Arapahoe County case. In its motion for summary judgment, AOIC argued it had no
duty to defend HCC prior to the Arapahoe County action because it never
received a CDARA notice that would trigger its duty to defend. Because the duty
to defend under the CDARA arises upon either the service of the notice of claim
of defects or upon the filing of an action, and HCC never provided the
statutory notice to AOIC, AOIC argued that it was not obligated to defend. AOIC
further argued that the letter from Zurich to HCC that initially reported the
construction defect claim was insufficient statutory notice under CDARA.
In evaluating this argument, Judge Jackson applied the
policy of C.R.S. § 13-20-808, that is, to construe insurance contracts in
favor of the insured as reasonably and objectively as possible. Looking at the
plain language of the statute, that an insurer “shall defend a construction
professional who has received a notice of claim,” Judge Jackson determined that
an insurance company’s duty to defend its insured occurs as soon as notice is made
to the construction professional itself, not the insurer. Further, Judge
Jackson was not convinced by AOIC’s argument that the notice of claim should
have come from the property owner itself, not Zurich. In fact, C.R.S. §
13-20-802.5(5) only requires notice to come from “a claimant,” which could
include Zurich, on behalf of Brinkman. Judge Jackson granted summary judgment
in favor of HCC on these issues.
However, Judge Jackson found a genuine dispute of material
fact existed with regard to whether Zurich’s letter described the claim with
sufficient detail to determine the nature of the defect and claimed damages, as
required by CDARA. This factual dispute would need to go to the jury, should
AOIC wish to pursue it.
This case is instructive for at least three reasons. First,
it is important that claimants follow the letter of the law with precision and
detail when giving notice of a construction defect claim.[2] Second,
insurers cannot avoid the duty to defend because notice did not come to them
separately or from a particular claimant. Finally, this case serves as a
reminder that CDARA explicitly favors both 1) “the interpretation of insurance
coverage broadly for the insured” and 2) “a broad interpretation of an
insurer’s duty to defend.” C.R.S. § 13-20-808.
For additional information about the Auto-Owners v.
High Country Coatings decision or construction litigation in general,
you can reach Ben Volpe by telephone at (303) 987-7140 or by e-mail
at Volpe@hhmrlaw.com.
[1] Auto-Owners Ins. Co. v. High Country
Coatings, Inc., 388 F. Supp. 3d 1328 (D. Colo. 2019).
[2] “Notice of claim” means a written notice sent by a
claimant to the last known address of a construction professional against whom
the claimant asserts a construction defect claim that describes the claim in
reasonable detail sufficient to determine the general nature of the defect,
including a general description of the type and location of the construction
that the claimant alleges to be defective and any damages claimed to have been
caused by the defect. C.R.S. § 13-20-802.5.
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