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Larson v. One Beacon Insurance Company

United States District Court, District of Colorado

March 31, 2015

DOUGLAS LARSON, in his capacity as Bankruptcy Trustee for the Estate of Cynthia Coreyn Tester-Lamar, Plaintiff



THIS MATTER comes before the Court on the Defendant One Beacon Insurance Company’s Renewed Motion for Summary Judgment (#98), the Plaintiff Douglas Larson’s Response (#104), and the Defendant’s Reply (#107). The parties had an opportunity to present oral argument on the matter at a hearing on March 30, 2015.

I. Material Facts

The underlying facts of this case are complex, although mostly undisputed. As relevant here, Ms. Tester-Lamar was an attorney who was insured against malpractice liability under a policy issued by the Defendant, One Beacon Insurance Company. The policy limit was $1 million.

In 2010, former clients of Ms. Tester-Lamar brought a malpractice action against her and her law firm. One Beacon defended Ms. Tester-Lamar in the malpractice action. Although there was some evidence suggesting that the clients’ damages could exceed $4 million, Ms. Tester-Lamar adamantly disputed that she had any liability to her former clients. On two occasions, the clients offered to settle their claims for the coverage limit of the One Beacon policy. On neither occasion did One Beacon timely respond to the settlement offer, and as a consequence, the offer expired.

On March 1, 2012, while the malpractice litigation was still ongoing, Ms. Tester-Lamar filed for bankruptcy under Chapter 7. Douglas Larson (Trustee) was appointed as the Trustee in Ms. Tester-Lamar’s bankruptcy case.

In June 2012, the Trustee entered into a settlement agreement in the malpractice action. The agreement provided that the Trustee would (1) confess judgment in favor of the former clients in the amount of $4.5 million, and (2) pursue a bad faith claim against One Beacon due to its failure to settle. In exchange, the former clients agree to waive their claims against Ms. Tester-Lamar’s law firm and to fund the Trustee’s lawsuit against One Beacon. The Bankruptcy Court approved the agreement, and in October 2012, judgment was entered against Ms. Tester-Lamar in the amount of $4.5 million. The Trustee then brought this action against One Beacon, asserting authority under 11 U.S.C. § 541 and § 323 to liquidate property of the bankruptcy estate.

In this action, the Trustee initially asserted three claims under Colorado law: (1) breach of the insurance contract; (2) bad faith breach of the insurance contract; and (3) violation of C.R.S. § 10-3-1115 by unreasonably delaying or denying payment of a claim for benefits owed to Ms. Tester-Lamar. The breach of contract claim has been dismissed, due to the Trustee’s failure to specify what provision of the contract was breached.[1] This leaves the remaining two claims. One Beacon moves for summary judgment on the claim on the bad faith breach of insurance contract.

II. Standard of Review

Rule 56 of the Federal Rules of Civil Procedure facilitates the entry of a judgment only if no trial is necessary. See White v. York Intern. Corp., 45 F.3d 357, 360 (10th Cir. 1995). Summary adjudication is authorized when there is no genuine dispute as to any material fact and a party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). Substantive law governs what facts are material and what issues must be determined. It also specifies the elements that must be proved for a given claim or defense, sets the standard of proof and identifies the party with the burden of proof. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Kaiser-Francis Oil Co. v. Producer’s Gas Co., 870 F.2d 563, 565 (10th Cir. 1989). A factual dispute is “genuine” and summary judgment is precluded if the evidence presented in support of and opposition to the motion is so contradictory that, if presented at trial, a judgment could enter for either party. See Anderson, 477 U.S. at 248. When considering a summary judgment motion, a court views all evidence in the light most favorable to the non-moving party, thereby favoring the right to a trial. See Garrett v. Hewlett Packard Co., 305 F.3d 1210, 1213 (10th Cir. 2002).

III. Analysis

One Beacon argues that it is entitled to judgment in its favor on the bad faith claim because the Trustee cannot make a prima facie showing of each elements of the claim. The Court agrees that the Trustee cannot prevail - but not because there is a deficiency of proof with regard to the elements of his claim. Rather, the Court finds that, first, no bad faith claim against One Beacon accrued prior to Ms. Tester-Lamar’s bankruptcy filing, and second, as a consequence, neither Ms. Tester-Lamar’s bankruptcy estate nor the Trustee as its representative have any claim to pursue in this action.

A. Bankruptcy Principles

Because the Plaintiff in this action is a Chapter 7 Bankruptcy Trustee, the Court begins with consideration of several fundamental principles of federal bankruptcy law. First, a Chapter 7 Trustee is the agent of the bankruptcy estate, and therefore has the duty to “collect and reduce to money the property of the estate . . . .” 11 U.S.C. § 323(a) and § 704(a)(1). In this capacity, a Trustee has ...

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