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Wardcraft Homes, Inc. v. Employers Mutual Casualty Co.

United States District Court, D. Colorado

September 29, 2014

WARDCRAFT HOMES, INC., a Kansas corporation, Plaintiff,
EMPLOYERS MUTUAL CASUALTY COMPANY, an Iowa corporation, Defendant

Page 1199

For Wardcraft Homes, Inc., a Kansas corporation, Plaintiff: Paul E. Collins, LEAD ATTORNEY, Carol Lynn Thomson, Treece Alfrey Musat, P.C., Denver, CO.

For Employers Mutual Casualty Company, an Iowa corporation, Defendant: Jerad A. West, Lelia Kathleen Chaney, Lambdin & Chaney, LLP, Denver, CO.

Page 1200


PHILIP A. BRIMMER, United States District Judge.

This matter is before the Court on the Motion for Partial Summary Judgment [Docket No. 17] filed by plaintiff Wardcraft Homes, Inc. (" Wardcraft" ) and the Motion for Summary Judgment [Docket No. 24] filed by defendant Employers Mutual Casualty Company (" EMC" ). This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332.


Wardcraft manufactures pre-fabricated homes at a facility in Fort Morgan, Colorado. Docket No. 17 at 3, ¶ 1. In 2007, Distinguished Builders, Inc. (" DBI" ) was an independent contractor of Wardcraft who purchased Wardcraft-manufactured homes and then resold and constructed those homes in, as relevant here, the Oak Creek, Colorado area. Id. at 3, ¶ 2. Wardcraft was insured under a Commercial General Liability insurance policy, policy number 2D9079709 (the " policy" ), issued by EMC. Id. at 4, ¶ 9; see also Docket Nos. 17-3 through 17-6.[2] The policy provided coverage from November 24, 2008 through November 24, 2009. Id.

In March 2007, William and Grace Stuhr contacted Wardcraft about purchasing a modular home to be constructed in Oak Creek, Colorado. Docket No. 20-1 at 2,

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¶ 8. The Stuhrs were then contacted by DBI and, on June 19, 2007, entered into a purchase agreement (the " purchase agreement" ) with DBI for the purchase and construction of a Wardcraft-manufactured home. Id. at 2, ¶ ¶ 8, 10. The home was not completed as scheduled and, according to the Stuhrs, at the time they filed the complaint was " unfinished with numerous defects." Id. at 3, ¶ 18. As a result, on October 30, 2009, the Stuhrs filed suit against Wardcraft and DBI in the District Court for Routt County, Colorado, Case No. 09CV293 (the " Stuhr suit" ). Id. at 1; Docket No. 24 at 2, ¶ 1. The Stuhrs' Verified Complaint (the " Stuhr Complaint" )[3] asserted claims against Wardcraft for negligence, breach of warranty, and deceptive trade practices in violation of the Colorado Consumer Protection Act, Colo. Rev. Stat. § 6-1-105(1)(g). Docket No. 20-1 at 5, 6, 8.

In December 2009, the Stuhr Complaint was tendered to EMC. Docket No. 24 at 2, ¶ 2. In a letter received by Wardcraft on February 5, 2010 (the " letter" ), EMC informed Wardcraft that it was denying coverage under the policy and any duty to defend, stating, in part:

In connection with the CGL policy, the alleged construction defects are not property damages and there is no occurrence in connection with faulty workmanship. In addition, the loss of use coverage is barred by Exclusion 2.I. and loss of use damages associated with construction defects or delays are barred by Exclusion 2.m. Because there is no duty to indemnify, a defense will not be provided. There is also no coverage under the Commercial Umbrella Policy.

Docket No. 17-7 at 5. On March 9, 2012, the Stuhrs f iled the Second Verified Amended Complaint (" Second Amended Complaint" ), which added a negligence claim against James Pool, Terry's Crane and Rigging, Inc., and Preferred Transportation, Inc. Docket No. 24 at 2, ¶ 3; Docket No. 17-2. Daniel Pence, an EMC adjustor assigned to Wardcraft's claim, states that Wardcraft did not tender the Second Amended Complaint to EMC and that Wardcraft first notified EMC of the Second Amended Complaint in a March 14, 2013 letter from Wardcraft's counsel. Docket No. 24-3 at 1, ¶ ¶ 6-7. Wardcraft responds that " EMC was put on notice of the proceedings," but does not otherwise identify or produce any evidence that the Second Amended Complaint was, at any point, tendered to EMC. Docket No. 32 at 1, ¶ 4. T he record contains no evidence that, prior to initiating the present suit, Wardcraft provided EMC with additional information or requested that EMC reconsider its decision to deny coverage. Wardcraft provides no evidence and makes no allegation that, after informing Wardcraft of the decision to deny coverage, EMC took any wrongful action or inaction with respect to Wardcraft's claim.

Wardcraft claims to have defended the Stuhr suit. Docket No. 17 at 4, ¶ 8. In early February 2013, the Stuhrs, Wardcraft, and DBI fully executed a settlement agreement (the " settlement agreement" ), retroactively effective as of January 14, 2013, under which Wardcraft paid the Stuhrs $50,000 to settle the claims brought against it in the Stuhr suit. Docket No. 32-1 at 1, 4.[4]

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On February 4, 2013, Wardcraft filed the present case in the District Court for Routt County, Colorado. Docket No. 1 at 1. On March 27, 2013, EMC timely filed a Notice of Removal. Id. Wardcraft's complaint alleges that it tendered defense of the Stuhr suit to EMC, but that, on February 5, 2010, EMC denied coverage under the policy and declined to defend Wardcraft in the Stuhr suit. Docket No. 3 at 3, ¶ ¶ 17, 21. Wardcraft claims that it was entitled under the policy to have EMC defend it in the Stuhr suit and indemnify it for the amount paid to the Stuhrs pursuant to the settlem ent agreement. Id. at 3, ¶ 25. Wardcraft brings claims against EMC for breach of contract for EMC's failure " to undertake the defense of Plaintiff in the Stuhr suit" and failure to indemnify, id. at 3, ¶ ¶ 28, 29, bad faith breach of insurance contract for " unreasonably refusing to provide a defense," id. at 4, ¶ 33, and unreasonable conduct in violation of Colo. Rev. Stat. § 10-3-1115 and § 10-3-1116 for " failure to provide a defense," id. at 4, ¶ ¶ 37, 39. Wardcraft also seeks a declaratory judgment that Wardcraft was covered under the policy and that EMC " has not complied with its duties and responsibilities to defend or indemnify Plaintiff in the Stuhr suit." Id. at 5, ¶ 46.

On November 1, 2013, Wardcraft filed its motion for partial summary judgment. Docket No. 17 at 2. Wardcraft asserts that " it is entitled to summary judgment in its favor as to Defendants' [sic] duty to defend" and seeks an order in Wardcraft's favor " as to the breach of Defendant's duty to defend Plaintiff in the underlying lawsuit." Id. at 3, 16. Although Wardcraft does not clearly indicate on which claims it seeks summary judgment, the Court construes Wardcraft's motion as seeking summary judgment only as to EMC's duty to defend the Stuhr suit. On January 15, 2014, EMC filed its motion for summary judgment, arguing that Wardcraft's breach of contract and declaratory judgment claims fail because EMC had no duty to defend or indemnify Wardcraft and arguing that Wardcraft's bad faith and statutory claims are barred by the statute of limitations. Docket No. 24 at 19.


Summary judgment is warranted under Federal Rule of Civil Procedure 56 when the " movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A disputed f act is " material" if under the relevant substantive law it is essential to proper disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). Only disputes over material facts can create a genuine issue for trial and preclude summary judgment. Faustin v. City & Cnty. of Denver, 423 F.3d 1192, 1198 (10th Cir. 2005). An issue is " genuine" if the evidence is such that it might lead a reasonable jury to return a verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).

The nonmoving party may not rest solely on the allegations in the pleadings, but instead must designate " specific facts showing that there is a genuine issue for trial." Celotex, 477 U.S. at 324; see Fed.R.Civ.P. 56(e). " To avoid summary judgment, the nonmovant must establish, at a minimum, an inference of the presence of each element essential to the case." Bausman v. Interstate Brands Corp., 252 F.3d 1111, 1115 (10th Cir. 2001) (citing Hulsey v. Kmart, Inc., 43 F.3d 555, 557 (10th Cir. 1994)). " In applying this standard, we view all facts and any reasonable inferences that might be drawn from them in the light most favorable to the nonmoving

Page 1203

party." Henderson v. Inter-Chem Coal Co., Inc., 41 F.3d 567, 569 (10th Cir. 1994).


A. Duty to Defend

Wardcraft argues that a duty to defend the Stuhr suit arose because the Stuhr Complaint contained claims falling within the policy's property damage coverage and advertising injury coverage. Docket No. 17 at 5-6. EMC claims that the Stuhr Complaint did not allege any claims potentially covered under the policy. Docket No. 24 at 2. Under Colorado law,[5] the duty to defend is separate and distinct from an insurer's obligation to indemnify its insured. See Hecla Mining Co. v. N.H. Ins. Co., 811 P.2d 1083, 1086 n.5 (Colo. 1991). While " [t]he duty to indemnify relates to the insurer's duty to satisfy a judgment entered against the insured, . . . [t]he duty to defend concerns an insurance company's duty to affirmatively defend its insured against pending claims." Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 299 (Colo. 2003) (internal quotations and citations omitted).

[T]he duty to defend arises where the alleged facts even potentially fall within the scope of coverage, but the duty to indemnify does not arise unless the policy actually covers the alleged harm. Where there is no duty to defend, it follows that there can be no duty to indemnify. However, where there is a duty to defend, there is not necessarily a duty to indemnify.

Constitution Assocs. v. N.H. Ins. Co., 930 P.2d 556, 563 (Colo. 1996) (emphasis in original, citation omitted).

" As a general rule under Colorado law, an insurer's duty to defend an insured is triggered solely on the basis of the allegations made within the four corners of the complaint, read against the insurance policy." United Fire & Cas. Co. v. Boulder Plaza Residential, LLC, 633 F.3d 951, 960 (10th Cir. 2011); see also Cotter Corp. v. Am. Empire Surplus Lines Ins. Co., 90 P.3d 814, 829 (Colo. 2004). To show that the insurer had a duty to defend, " the insured need only show that the underlying claim may fall within policy coverage." Compass Ins. Co. v. City of Littleton, 984 P.2d 606, 614 (Colo. 1999) (internal citations and quotations omitted). To defeat a duty to defend, an insurer bears a " heavy burden." Hecla Mining, 811 P.2d 1089. The insurer must establish that " there is no factual or legal basis on which the insurer might eventually be held liable to indemnify the insured." Id. at 1090. Where policy exclusions are implicated, " the insurer bears the burden of establishing that 'the allegations in the complaint are solely and entirely within the exclusions in the insurance policy.'" Cotter Corp., 90 P.3d at 829 (citation omitted). Accordingly, where " there is some doubt as to whether a theory of recovery within the policy coverage has been pleaded, the insurer must accept the defense of the claim." City of Littleton, 984 P.2d at 613-14 (Colo. 1999). If the underlying complaint includes more than one claim, a duty to defend against all claims asserted arises if any one of the claims arguably is a risk covered by the relevant insurance policy. Horace Mann Insurance Co. v. Peters, 948 P.2d 80, 85 (Colo. App. 1998) (citation omitted). The existence of a duty to defend against a particular claim is a question of law. See Bumpers v. Guar. Trust Life Ins. Co., 826 P.2d 358, 360 (Colo. App. 1991); see also Carl's Italian Rest. v. Truck Ins. Exch., 183 P.3d 636, 639 (Colo. App. 2007).

The interpretation of an insurance policy is a legal ...

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