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Peerless Indemnity Insurance Co. v. Colclasure

United States District Court, D. Colorado

February 16, 2017

SHANE COLCLASURE, individually and d/b/a Sunrise Buildings, PATRICIA WEED, Defendants.


          William J. Martinez, United States District Judge

         This is a diversity action whereby Plaintiff Peerless Indemnity Insurance Company (“Peerless”) seeks a declaration of its rights and obligations under the commercial general liability policy (the “Policy”) it issued to Shane Colclasure (“Defendant Colclasure”). Specifically, Peerless “requests a declaratory judgment from this Court that [Peerless] has no obligation to indemnify Defendant Colclasure” for any judgment obtained against him in an underlying action involving Patricia Weed (“Defendant Weed”). (ECF No. 1 ¶ 27.) This matter is before the Court on Peerless's Motion for Summary Judgement. (the “Motion, ” ECF No. 38.) For the reasons set forth below, the Motion is granted in part and denied in part.

         I. BACKGROUND

         The following facts are undisputed, unless attributed to one party or another, or otherwise noted.

         Peerless issued the subject insurance Policy to Defendant Colclasure, with a coverage period effective December 5, 2011 to December 5, 2012. (ECF No. 38 ¶ 1.) The Policy provides coverage, subject to certain exclusions, for those sums that Defendant Colclasure becomes legally obligated to pay as damages because of “bodily injury” or “property damage” caused by an “occurrence.” (Id. ¶ 2; ECF No. 1-1 at 30.)

         On July 12, 2011, the roofing systems on Defendant Weed's residence, barn, and indoor riding arena were damaged due to a localized hail storm. (ECF No. 38-2 at 2.) Defendant Weed's homeowner's insurance company authorized funds pursuant to its policy for the repair and replacement of each roof. (Id.) On October 7, 2011, Defendant Weed entered into a contract with Defendant Colclasure, to remove and replace the damaged roofing systems. (ECF No. 83-3 at 1.) The contract included a fee-shifting provision, stating “[i]n the event litigation or arbitration arises out of this contract, prevailing party(ies) are entitled to all legal, arbitration, and attorney fees.” (Id. at 2.) Defendant Colclasure later subcontracted with D&G Construction, Inc. to replace the steel roofing on the riding arena. (ECF No. 38 ¶ 11.)

         Defendant Colclasure and/or his subcontractor failed to properly remove and replace the riding arena roof, which resulted in water leakage, panel alignment problems, and damage to the insulation between the roof decking and truss system. (Id. ¶ 13.) Subsequently, on May 25, 2012, Defendants Colclasure and Weed entered into an amended contract, whereby Defendant Colclasure agreed “that upon receipt of the final payment he will remove the insulation and the metal roofing. Contractor [Colclasure] will replace with Homeowner approve[d insulation] and Burgundy metal roofing material [. . .]” (ECF No. 36-6 at 1.) Defendant Colclasure then attempted to repair the roof. (ECF No. 38 ¶ 15.)

         On February 10, 2014, Defendant Weed brought suit against Defendant Colclasure and his subcontractors in Colorado state court, bringing five claims for relief: (1) breach of contract, (2) breach of warranty, (3) negligence resulting in property damages, (4) negligence per se, and (5) negligent repair resulting in property damage. (Id. ¶ 17; ECF No. 38-2 at 4-6.) In the underlying complaint, Defendant Weed alleged that the roofing system “had been installed in a manner that exposed the insulation, truss system and [arena] floor to water infiltration.” (Id. at 4.) Peerless provided a defense to Defendant Colclasure, subject to a reservation of rights under the Policy. (ECF No. 38 ¶ 19.)

         At trial, Weed testified regarding Defendant Colclasure and/or his subcontractor's defective workmanship. (Id. ¶ 20.) Trial evidence supported the cost to repair/replace the arena roof as an element of damages. According to Defendants “some of the defects referenced illustrate resultant [or consequential] damage to the arena's original insulation, wood framing and flooring.” (ECF No. 47 ¶ 20.) As to the insulation, testimony was elicited establishing “water damage to the insulation” and subsequent deterioration. (ECF No. 38-5 at 14.) Both Defendant Colclasure and Defendant Weed testified at trial that Defendant Colclasure had agreed to replace the wet insulation in the amended contract. (ECF No. 38 ¶ 22.) When asked at trial whether the insulation was ever replaced by Defendant Colclasure, Defendant Weed answered “no, it was not.” (ECF No. 38-8 at 9.) As to the wood framing, Ms. Weed testified at trial that she “observe[d] major water damage coming through-water coming through and damaging the wood[.]” (ECF No. 38-5 at 15.) And that the water “started coming down the wood structure inside on the wood posts.” (ECF No. 38-8 at 3.) Further, the water “really soaked into the wood” which became “darkened from water damage.” (Id. at 5-6.) As to the arena flooring, Defendant Weed testified that water leaked “towards the side of the building . . . . [d]own onto the floor.” (Id. at 5.) The underlying complaint alleges that the riding arena has “a specialized floor suited to equestrian activity.” (ECF No. 38-2 at 2.) In fact, during trial, Defendant Weed's horse trainer testified that “water on the floor can be a problem with the horses.” (ECF No. 38-5 at 13.) Also, trial testimony regarding the cost to repair and replace the arena roofing system was elicited to support the element of damages. (ECF No. 38-4 at 14-15.)

         On December 18, 2015, the jury found in favor of Defendant Weed on her breach of contract, breach of warranty, and negligence claims. (ECF No. 38-9 at 2-3.) On Defendant Weed's negligence claim, the jury allocated one hundred percent of the fault to Defendant Colclasure, and zero percent to his subcontractor. (ECF No. 38 ¶ 32.) The judgment entered on Defendant Weed's jury verdict was for $125, 000 in economic damages, $25, 000 in non-economic damages, $14, 796.26 in costs, and $136, 573.35 in reasonable attorneys' fees. (ECF No. 38-10 at 2.) To the Court's knowledge, the verdict did not detail what damages arose from each claim, nor did it itemize which elements of claimed damages underlie the jury's damages award.[1]

         Based on this course of events, Peerless brought this action for declaratory judgment on February 22, 2016. (ECF No. 1.) On April 5, 2016, Defendants Weed and Colclasure together filed an answer to the complaint and counterclaims against Peerless, including: (1) breach of insurance contract, (2) common law bad faith breach of insurance contract, (3) statutory bad faith under Colorado Revised Statutes §§ 10-3-1115 and 10-3-1116, (4) professional negligence, (5) breach of fiduciary duty, (6) negligent misrepresentation, and (7) negligent failure to warn. (ECF No. 19 at 11-18.)[2]

         On July 25, 2016, Peerless filed its Motion for Summary Judgment. (ECF No. 38). On August 30, 2016, discovery was stayed pending resolution of the Motion. (ECF No. 44.) On September 9, 2016, Defendants filed their Response to the Motion. (ECF No. 47). Peerless filed its Reply on October 10, 2016. (ECF No. 52).


         Summary Judgment is appropriate only if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Adamson v. Multi. Cmty. Diversified Servs., Inc., 514 F.3d 1136, 1145 (10th Cir. 2008). Whether there is a genuine dispute as to a material fact depends upon whether the evidence presents a sufficient disagreement to require submission to a jury or, conversely, is so one-sided that one party must prevail as a matter of law. Anderson v. Liberty Lobby, 477 U.S. 242, 248-49 (1986); Stone v. Autoliv ASP, Inc., 210 F.3d 1132, 1136 (10th Cir. 2000).

         On a motion for summary judgment, the moving party bears the burden of demonstrating that no genuine issue of material fact exists. Adamson, 514 F.3d at 1145. Where the moving party does not bear the ultimate burden of persuasion at trial, it may satisfy this burden by demonstrating a lack of evidence for an essential element of the nonmovant's claim. Id. In contrast, a movant who bears the burden at trial must submit evidence to establish the essential elements of its claim or affirmative defense. In re Ribozyme Pharms., Inc. Sec. Litig., 209 F.Supp.2d 1106, 1111 (D. Colo. 2002). In deciding whether the moving party has carried its burden, the Court does not weigh the evidence, and instead views it, and draws all reasonable inferences from it, in the light most favorable to the nonmoving party. Adamson, 514 F.3d at 1145. Unsupported conclusory allegations, however, are not sufficient to create a genuine dispute of material fact on summary judgment. See Mackenzie v. City & Cnty. of Denver, 414 F.3d 1266, 1273 (10th Cir. 2005). When a moving party has carried its burden under Rule 56(c), more than “some metaphysical doubt” as to the material facts must be demonstrated by the nonmovant to survive summary judgment. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).

         III. ANALYSIS

         Under Colorado law, [3] “the duty to indemnify relates to the insurer's duty to satisfy a judgment entered against the insured” and “arises only when the policy actually covers the alleged harm” that underlies the entered judgment. Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 299 (Colo. 2003). Simply stated, “indemnity flows from the nature of the ultimate verdict, judgment, or settlement.” Id. at 301. Accordingly, the determination of whether an insurer owes a duty to indemnify “requires factual development, as it is largely a question of fact.” Id. at 302.

         Colorado courts construe insurance policies “using general principles of contract interpretation.” Greystone Constr., Inc. v. Nat'l Fire & Marine Ins. Co., 661 F.3d 1272, 1283 (10th Cir. 2011). Therefore, absent an ambiguity, a policy's language is construed according to its plain meaning. Id. However, in recognition of the unique relationship between insurer and insured, courts “construe ambiguous provisions against the insurer and in favor of providing coverage to the insured.” Id. Courts should read policy provisions as a whole rather than in isolation, and may not “extend coverage beyond that contracted for, nor delete [provisions] to limit coverage.” Cyprus Amax Minerals Co., 74 P.3d at 299.

         Under a commercial general liability (“CGL”) policy, such as the one at issue here, the initial burden is upon the insured to show that the loss sustained comes within the terms of the insurance policy; in other words, the insured has the burden to prove a material issue of fact exists concerning their entitlement to recovery under the insurance policy. See Rodriguez v. Safeco Ins. Co., 821 P.2d 849, 853 (Colo.App. 1991). Then, once the insured claims a loss covered by the policy, the burden is on the insurer to prove that the policy excludes the proximate cause of the loss. Leprino Foods Co. v. Factory Mut. Ins. Co., 453 F.3d 1281, 1287 (10th Cir. 2006); see also 17A Steven Plitt et al., Couch on Insurance § 254:52 (3d ed., Dec. 2016 update) (discussing burden of proof in the context of general liability insurance). Any exclusion must be clear and specific to be enforceable. Leprino Foods, 453 F.3d at 1287. If the insurer shows that an exclusion applies, “[t]he burden then shifts back to the insured to prove the applicability of an exception to the exclusion.” Id. (citation omitted).

         Peerless argues that the Policy does not provide indemnity with respect to the underlying judgment because there is no coverage for economic and non-economic damages, as well as attorneys' fees and costs. (ECF No. 38 at 2-3.) Peerless also contends that Defendant Colclasure's counterclaims fail as a matter of law and should therefore be dismissed. (Id. at 3.) Defendants, however, respond that there is indemnification under the Policy for the underlying judgment, and that the counterclaims survive Peerless's Motion. (ECF No. 47 at 15, 30.) The Court discusses each argument in turn, below.

         A. Whether Policy Coverage Exists

         1. Economic Damages

         The Court first considers the parties' arguments as to whether the underlying judgment reflects an award for “property damage” caused by an “occurrence.” The Policy applies “only if . . . . [t]he ‘bodily injury' or ‘property damage' is caused by an ‘occurrence' that takes place in the ‘coverage territory.'” (ECF No. 1-1 at 30.)

         a. Occurrence

         “Occurrence” is defined under the Policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (Id. at 44.) Peerless argues that faulty workmanship, or deficiencies in the insured's work, does not constitute “property damage” caused by an “occurrence.” (ECF No. 38 at 15 (citing McGowan v. State Farm Fire & Cas. Co., 100 P.3d 521, 525 (Colo.App. 2004)).) Defendants point to Colorado Revised Statutes § 13-20-808, arguing that the “statutorily required construction of ‘occurrence' in this case is dispositive.” (ECF No. 47 at 16.)

         Signed into law on May 21, 2010, § 13-20-808, as applied to the Policy's definition of “occurrence, ” creates a threshold presumption that construction work resulting in damage is an “accident, ” and therefore an “occurrence” until an exclusion eliminates coverage:

In interpreting a liability insurance policy issued to a construction professional, a court shall presume that the work of a construction professional that results in property damage, including damage to the work itself or other work, is an accident unless the property damage is intended and expected by the insured. Nothing in this subsection:
(a) Requires coverage for damage to an insured's own work unless otherwise provided in the insurance policy; or
(b) Creates insurance coverage that is not included in the insurance policy.

         C.R.S. § 13-20-808(3) (emphasis added).

         The Court finds that this statute is applicable and settles this issue. Peerless issued the Policy to Defendant Colclasure in 2011, subsequent to the statute's passage. (See ECF No. 38 ¶ 1.) In its Reply, Peerless argues that the “Defendants cannot rely on § 13-20-808 to rewrite the Policy and provide coverage for [Defendant Colclasure's] defective work, ” noting that nothing in the subsection requires coverage for defective work, or creates insurance coverage that is not otherwise included. (ECF No. 52 at 9.) The Court notes that the statute is not a guarantee of coverage under the commercial liability policy, rather it operates to shift the burden of proof away from the insured specifically as to the meaning of “accident, ” which falls within the Policy's definition of “occurrence”; and to create a judicial presumption that an “accident” (and therefore an “occurrence”) has been shown, unless or until a Policy exclusion eliminates coverage for that type of occurrence. In other words, § 13-20-808 does not mandate that all construction defect claims are covered, as Peerless correctly notes, because it specifically preserves an insurer's right to exclude coverage. See C.R.S. § 13-20-808(3)(a).

         In Colorado Pool Systems, Inc. v. Scottsdale Ins. Co., 317 P.3d 1262 (Colo.App. 2012), the Colorado Court of Appeals discussed the effect of the statute in dicta, noting that “[t]he statute's effect is clear enough. If we were to apply it, we would presume that the CGL policy covered damage that resulted from [the general contractor's] defective workmanship.” Id. at 1268.[4] Likewise, it fairly appears that Defendant Colclasure and/or his subcontractor did not intend and expect the damage to Defendant Weed's property, thus applying the presumption required by § 13-20-808 to the Policy, the Court finds that Defendant Colclasure's work resulting in property damage was an “accident” and, therefore, is a covered “occurrence.”

         b. Pr ...

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