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Auto-Owners Insurance Co. v. High Country Coatings, Inc.

United States District Court, D. Colorado

June 12, 2017

AUTO-OWNERS INSURANCE COMPANY, a Michigan corporation, Plaintiff,
HIGH COUNTRY COATINGS, INC., a Colorado corporation, and ZURICH AMERICAN INSURANCE CO., a New York corporation, Defendants.


          R. Brooke Jackson United States District Judge

          This matter is before the Court on defendant High Country Coatings, Inc.'s (“HCC”) motion for a partial summary judgment, ECF No. 14, and its motion to stay, ECF No. 23. For the reasons below, the Court GRANTS HCC's motion for a partial summary judgment [ECF No. 14] and GRANTS IN PART and DENIES IN PART its motion to stay [ECF No. 23].

         I. FACTS

         Defendant HCC is a Colorado-based subcontractor that applies floor coatings. See Compl., ECF No. 2, at ¶4. In November 2012 it subcontracted with Brinkman Construction, Inc. (“Brinkman”) to install epoxy and urethane coatings and joint caulking on concrete floor slabs in an airport hangar at Loveland Airport in Loveland, Colorado. Aff. of David Anderson, ECF No. 14-1, at ¶2. After HCC finished its work, Brinkman and the project owner, Otter Aviation, LLC (“Otter”), allegedly discovered that the coating HCC had applied started to “bubble.”[1] Id. at ¶3. Brinkman and Otter subsequently demanded that HCC replace its coating. Id. Initially disputing whether it had any obligation to do so, HCC later agreed to install a new floor covering under a “Floor System Agreement.” Id. at ¶4; ECF No. 14-2 (Floor System Agreement). That Agreement required Tennant Company and Tennant Sales and Service Company (“Tennant”)- the supplier of the original floor coating-to supply a different coating to the job site that HCC would subsequently install. Id.

         Sometime before it signed the Agreement, HCC apparently submitted a claim to its general liability insurance company at the time, Liberty Mutual, for “damages” at Loveland Airport.[2] ECF No. 27-11 (ClaimSearch Inquiry). HCC then took out a one-year policy with Auto-Owners Insurance Company (“AOIC”), the plaintiff in this action. ECF No. 27-2 (HCC's Policy). HCC's commercial general liability policy with AOIC became effective on May 1, 2014-roughly two months before HCC began replacing the floor coating under the terms of the Agreement. Id.; ECF No. 14-1 at ¶¶4-5.

         HCC subsequently finished applying the new coating on August 14, 2014. ECF No. 2 at ¶12. This new coating, however, also allegedly “bubbled.” Id. at ¶12. Again, Brinkman, this time through its insurance provider, defendant Zurich American Insurance Company (“Zurich”), demanded that HCC replace the floor coating. Id. at ¶13. HCC refused.[3] Id. Zurich subsequently sued HCC in Arapahoe County District Court on November 17, 2016. ECF No. 14-3 (Zurich's Complaint). In its complaint, Zurich alleges that HCC relied on improper floor testing when applying its coatings, failed to let the floor slab properly dry out before performing its work, and that both of HCC's floor coatings subsequently damaged the Airport hangar's concrete floor. Id. at ¶¶12-16. For purposes of this case, that lawsuit will be referred to as the “Underlying Action.”

         Procedural History

         With the Underlying Action pending, AOIC filed suit against both HCC and Zurich on December 29, 2016.[4] ECF No. 2. Here, AOIC asserts a claim for declaratory relief against HCC. Id. It contends that AOIC has neither a duty to defend HCC in the Underlying Action nor an obligation to indemnify it should Zurich ultimately prove successful in that case. Id. at ¶18; see also Constitution Assocs. v. N.H. Ins. Co., 930 P.2d 556 (Colo. 1996), as modified on denial of reh'g (Jan. 13, 1997) (permitting anticipatory declaratory judgment actions to determine the “duty to defend”).

         HCC answered AOIC's complaint on February 3, 2017. Def.'s Answer, ECF No. 13. In its answer, HCC asserts two counterclaims against AOIC for: (1) breach of contract; and (2) bad faith and unfair dealing. Id. at 6-8 (¶¶1-14); supra note 3. That same day, HCC filed a motion for a partial summary judgment. ECF No. 14. In that motion, HCC argues that, based on the allegations Zurich has made in the Underlying Action, that AOIC does in fact have a duty to defend it in that underlying case. See generally id.

         AOIC responded to HCC's motion for a partial summary judgment on March 6, 2017. ECF No. 27. As part of its response, AOIC asked the Court to conduct limited discovery on the question of whether HCC had knowledge of damage to the concrete at Loveland Airport before its policy with AOIC incepted. Id. at 11-12. HCC subsequently filed a motion to stay any such discovery, to bifurcate and stay a determination of whether AOIC has a duty to indemnify HCC, and to bifurcate and stay both of HCC's counterclaims. ECF No. 23. Both of HCC's motions are fully briefed and ripe for review.


         The Court may grant summary judgment if “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). The moving party has the burden to show that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The nonmoving party must “designate specific facts showing that there is a genuine issue for trial.” Id. at 324. A fact is material “if under the substantive law it is essential to the proper disposition of the claim.” Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A material fact is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248. The Court will examine the factual record and make reasonable inferences therefrom in the light most favorable to the party opposing summary judgment. Concrete Works of Colo., Inc. v. City & Cnty. of Denver, 36 F.3d 1513, 1517 (10th Cir. 1994).

         III. ANALYSIS

         Because my resolution of HCC's motion for a partial summary judgment affects the outcome of HCC's motion to stay, I address HCC's motion for a partial summary judgment first.

         A. HCC's Motion for a Partial Summary Judgment [ECF No. 14].

         HCC's motion for a partial summary judgment raises one discrete issue: does AOIC have a duty to defend HCC in the Underlying Action under Colorado law? For the reasons below, I say “yes.”

         A. The “Complaint Rule.”

          Colorado, like other states, follows the “complaint rule” in actions such as these to determine whether an insurance company has a duty to defend an insured in an underlying action. See Pompa v. American Family Mutual Ins. Co., 520 F.3d 1139, 1145-47 (10th Cir. 2008). As the Colorado Supreme Court has explained, that rule essentially tasks a court with reading the complaint in the underlying action and the parties' insurance policy in order to determine whether the facts alleged against the insured “might fall within the coverage of the policy.” Miller v. Hartford Cas. Ins. Co., 160 P.3d 408, 410 (Colo.App. 2007). In other words, under the complaint rule a court determines without the aid of any additional extrinsic evidence whether the allegations in the underlying action “state a claim which is potentially or arguably within the policy coverage[.]” Hecla Min. Co. v. N.H. Ins. Co., 811 P.2d 1083, 1089 (Colo. 1991) (internal quotation marks and citation omitted).

         Importantly, even if there is “some doubt as to whether a theory of recovery within the policy coverage has been pleaded” in the underlying action, “the insurer must accept the defense of the claim.” Id.; see Colo. Farm Bureau Mut. Ins. Co. v. Snowbarger, 934 P.2d 909, 911 (Colo.App. 1997) (“The actual liability of the insured to the claimant [in the underlying action] is not the criterion which places upon the insurance company the obligation to defend.”); see also Hecla, 811 P.2d at 1089 (“An insurer seeking to avoid its duty to defend an insured bears a heavy burden.”); C.R.S § 13-20-808 (discussing the duty to defend and stating that “[t]he longstanding and continuing policy of Colorado favors a broad interpretation of an insurer's duty to defend the insured under liability insurance policies and that this duty is a first-party benefit to and claim on behalf of the insured”).

         Because the complaint rule tasks a court with deciding only whether the claims in the underlying action might be covered by the parties' policy, a determination of an insurance company's duty to defend does not necessarily decide whether the company must ultimately indemnify the insured should the claimant in the underlying action prevail. Minn. Lawyers Mut. Ins. Co. v. King, 10-CV-00916-WYD-MEH, 2010 WL 4449371, at *3 (D. Colo. Nov. 1, 2010). Instead, the court's determination of whether an insurance company has a duty to defend is merely a means by which all parties can obtain clarity regarding their respective rights and obligations during the pendency of the underlying action. See also Pompa, 520 F.3d at 1146 (explaining the two rationales the Colorado Supreme Court has given for the complaint rule: (1) that “the rule protects the insured's legitimate ...

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