United States District Court, D. Colorado
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.
Brooke Jackson United States District Judge
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].
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.” 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
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. 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.
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. 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.”
the Underlying Action pending, AOIC filed suit against both
HCC and Zurich on December 29, 2016. 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”).
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
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.
STANDARD OF REVIEW
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
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
HCC's Motion for a Partial Summary Judgment [ECF No.
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
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).
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”).
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 ...