United States District Court, D. Colorado
OPINION AND ORDER ON MOTIONS FOR SUMMARY
S. KRIEGER SENIOR UNITED STATES DISTRICT JUDGE.
MATTER comes before the Court pursuant to the
Plaintiff's Motion for Summary Judgment (#
79) and the Third-Party Defendant's Motion for
Partial Summary Judgment (# 80). The Court
also has reviewed the opposition and supporting reply
briefing thereto (#81, #82, #87,
#88). For the reasons that follow, the
Plaintiff's Motion is granted, in part, and the
Third-Party Defendant's Motion is denied.
Court has jurisdiction under 28 U.S.C. § 1332.
Environmental Materials LLC (Environmental) is a manufacturer
and installer of stone veneer. It purchased multiple
Commercial Umbrella Liability Policies from Plaintiff
American Guarantee & Liability Insurance Co. (AGLIC) for
the 2006-07, 2007-08, and 2008- 09 policy periods. Each
Umbrella Policy provided excess coverage in accordance with
an underlying commercial general liability (CGL) insurance
policy issued by Employers Insurance Company of
Wausau. Coverage under the Umbrella Policy was
triggered when the limits of the Wausau Policy were
the policy periods at issue, the Wausau Policy provided for
“Defense Outside Limits”, which meant that costs
of defense were not applied against its policy limits. For
the relevant time periods (2006 to 2009), however, the Wausau
Policy provided for “Defense Within Limits”,
which meant that costs of defense were applied against policy
limits. Although the underlying Wausau CGL
coverage changed from “Defense Outside limits” to
“Defense Within Limits” in the 2006-07 policy
period, terms of the Umbrella Policy did not change. Indeed,
all the Umbrella Policies are based on the Wausau Policy
providing “Defense Outside Limits” coverage.
procure insurance, Environmental used the services of
Third-Party Defendant Moody Insurance Agency (Moody), a
retail insurance broker. Moody worked with Eydent Insurance
Brokers LLC (Eydent), a wholesale insurance broker that
contracted with AGLIC and its parent company, Zurich
Insurance Group. Each year there were several exchanges of
information between Environmental and Moody, and then between
Moody and Eydent about Environmental's policy needs. This
exchange resulted in policy applications and quote letters
from Wausau, the primary CGL insurance broker, involving the
underlying Wausau Policy itself.
early 2016, Environmental notified AGLIC that it was involved
in a lawsuit in New Jersey, and that the Wausau Policy limits
were on the verge of exhaustion for one or more of the 2006
to 2009 policy periods. The New Jersey matter was settled
with AGLIC contributing approximately $500, 000 to the
settlement. In March 2016, Environmental advised AGLIC that
the Wausau Policy limits had been exhausted, and requested
that AGLIC undertake its defense in an ongoing lawsuit in
Pennsylvania. Upon investigation, AGLIC learned that the
Wausau Policy limits had been exhausted, in part, by
application of more than $900, 000 of defense costs. Under
AGLIC's interpretation of the Umbrella Policy - which was
premised on an underlying CGL policy that provided Defense
Outside Limits - coverage and a duty to defend were not
addition, exhaustion of the limits of the Wausau Policy
resulted from application of a settlement payment made in
accordance with a “wrap-up”
program. AGLIC's view was that, because the
payment was excluded from coverage under the Umbrella Policy,
application of the payment to the Wausau Policy limits did
not trigger Umbrella Policy coverage.
seeks declaratory relief in four claims: (1) a determination
that Colorado law is applies for interpretation of the
policies, (2) a determination that the Wausau Policy was not
exhausted by the defense costs and wrap-up settlement payment
based on different Policy provisions, (3) a determination on
what AGLIC's drop-down obligations are, and (4) in the
event that the wrap-up settlement payment triggered coverage,
a reallocation of the settlement payment across multiple
policy periods. In its Answer (# 51),
Environmental alleges counterclaims against AGLIC for: (1) a
declaration of its rights under the Umbrella Policy, (2)
breach of contract based on AGLIC's failure to tender a
defense and indemnify, (3) negligence and negligent
misrepresentation based on AGLIC's breach of its duty of
care when selecting and issuing a policy that failed to
provide Environmental with the coverage it requested, and (4)
that the Umbrella policy be reformed to provide Environmental
with the coverage it originally intended to obtain.
Environmental also brings third-party claims against Moody
for negligence, negligent misrepresentation and breach of
functionally moves for summary judgment all claims and
counterclaims (# 79). Moody moves for
partial summary judgment on Environmental's breach of
contract claim (# 80).
of the Federal Rules of Civil Procedure facilitates the entry
of a judgment only if no trial is necessary. See White v.
York Int'l 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. Producers 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).
movant has the burden of proof on a claim or defense, the
movant must establish every element of its claim or defense
by sufficient, competent evidence. See Fed. R. Civ.
P. 56(c)(1)(A). Once the moving party has met its burden, to
avoid summary judgment the responding party must present
sufficient, competent, contradictory evidence to establish a
genuine factual dispute. See Bacchus Indus. Inc. v. Arvin
Indus. Inc., 939 F.2d 887, 891 (10th Cir. 1991);
Perry v. Woodward, 199 F.3d 1126, 1131 (10th Cir.
1999). If there is a genuine dispute as to a material fact, a
trial is required. If there is no genuine dispute as to any
material fact, no trial is required. The court then applies
the law to the undisputed facts and enters judgment.
moving party does not have the burden of proof at trial, it
must point to an absence of sufficient evidence to establish
the claim or defense that the non-movant is obligated to
prove. If the respondent comes forward with sufficient
competent evidence to establish a prima facie claim
or defense, a trial is required. If the respondent fails to
produce sufficient competent evidence to establish its claim
or defense, then the movant is entitled to judgment as a
matter of law. See Celotex Corp. v. Catrett, 477
U.S. 317, 322-23 (1986).
AGLIC'S MOTION FOR SUMMARY JUDGMENT
Motion seeks a determination of AGLIC's and
Environmental's rights and obligations under the Umbrella
Policy relative to exhaustion of the coverage limits of the
underlying Wausau Policy. The two areas of contention are
whether payments for defense costs and the settlement payment
under the wrap-up program count toward exhaustion of the
Wausau Policy and the triggering of the Umbrella Policy.
Environmental also seeks a determination of this issue in its
first Counterclaim. There are no genuine disputes as to
material fact regarding these issues. They can be determined
as a matter of law through interpretation of the terms and
provisions of the Umbrella Policy.
argues that under the terms of the Umbrella Policy, its
coverage was not triggered to the extent the policy limits of
the underlying Wausau Policy were exhausted by application of
payments for defense costs or a settlement payment made
pursuant to a wrap-up program. AGLIC contends that in this
regard there was a gap in coverage between the Wausau Policy
and the Umbrella Policy for which it is not responsible.
counters that the Umbrella Policy “followed
form”, meaning that its coverage was the same as the
Wausau Policy except where the terms of the Umbrella Policy
specifically contradicted those of the Wausau Policy.
Environmental further argues that no term in the Umbrella
Policy expressly contradicted the “Defense Within
Limits” provision in the Wausau Policy or application
of defense costs and or settlement payments made under a
wrap-up program to exhaust the Wausau Policy limits. In this
regard there was no gap in coverage because the Umbrella
Policy coverage was triggered when the Wausau Policy limits
were exhausted in accordance with its terms.
parties agree that Colorado law governs. In interpreting the
provisions of the Umbrella Policy, the Court is mindful that
Colorado law requires it to give them the meaning given
ordinary language under ordinary principles of contract
interpretation. See Ace Am. Ins. Co. v. Dish Network
LLC, 883 F.3d 881, 887 (10th Cir. 2018); Cyprus Amax
Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 299
(Colo. 2003). The Court reads the policy as a whole, does not
read its provisions in isolation, and strives to give effect
to the intent and reasonable expectations of the parties.
See Cyprus Amax, 74 P.3d at 299. Whenever possible,
such intent is discerned from the policy itself. See
Bengtson v. USAA Property & Cas. Ins., 3 P.3d 1233,
1235 (Colo.App. 2000). The Court generally construes a
policy's coverage provisions to provide the broadest
possible coverage. See Fire Ins. Exch. v. Bentley,
953 P.2d 1297, 1300 (Colo.App. 1998).
there is an ambiguity in the language of an insurance policy,
the Policy must be enforced as written. Ballow v. PHICO
Ins. Co., 875 P.2d 1354, 1359 (Colo. 1993). A mere
disagreement between the parties regarding the meaning of a
policy term does not create an ambiguity. State Farm Mut.
Auto. Ins. Co. v. Stein, 940 P.2d 384, 387 (Colo. 1997).
Rather, a provision is ambiguous if it is susceptible to more
than one reasonable interpretation. Terranova v. State
Farm Mut. Auto. Ins. Co., 800 P.2d 58, 60 (Colo. 1990).
If an ambiguity in the insurance policy language is found,
and there is no evidence of the parties' mutual intent,
the provision should be construed against the drafter - the
insurer - in favor of providing coverage to the insured.
Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74
P.3d 294, 299 (Colo. 2003).
is no dispute that the Umbrella Policy is an excess
policy, designed to provide coverage when the coverage of an
underlying CGL policy, such as the Wausau Policy, is
exhausted. Under Colorado law, excess insurance policies
presumptively follow form, meaning that the excess
policy adopts the terms and conditions of the underlying
policy. This presumption can be rebutted only by express
language in the policy limiting the coverage. Radil
v. Nat'l Union Fire Ins. Co. of Pittsburgh, 233
P.3d 688, 692 (Colo. 2010).
Absent express language defining the coverage
endorsed or a disclaimer of particular terms or conditions,
the excess insurer's follow-form endorsement . . . tracks
the underlying coverage in every respect, thereby
incorporating the terms and conditions that define the
underlying coverage. Id. at 689 (emphasis added).
Court also notes that the Tenth Circuit encountered the issue
presented in this case, albeit in the context of Kansas law.
Although its holding is not binding precedent, its reasoning
provides an analytical template. In Coleman Co. v.
California Union Insurance Co., 960 F.2d 1529 (10th Cir.
1992), the question was whether a drop-down defense
duty in an excess policy was triggered when the insured
reached its self-insured limit (retained limit) of $2.5
million. Like Colorado, Kansas law recognized the presumption
that an excess policy follows the form of the underlying
policy. The Circuit Court began its analysis with
consideration of the excess policy's coverage language to
determine whether it contained a follow-form endorsement.
Finding that it did, the Court then considered whether there
was a clear and specific provision in the excess policy
expressing the insurer's intent to deviate from the
follow-form presumption. Finding none, the Court held that
the exhaustion of the self-insured limit triggered the excess
policy's coverage and the insurer's duty to defend.
these precepts in mind, the Court begins with the language of