United States District Court, D. Colorado
ORDER ON MOTIONS FOR SUMMARY JUDGMENT
BROOKE JACKSON, UNITED STATES DISTRICT JUDGE
matter is before the Court on defendant First American Title
Insurance Company (“First American”)'s motion
for summary judgment [ECF No. 30] and plaintiff Cherry Hills
Farm Court, LLC (“Cherry Hills”)'s motion for
summary judgment [ECF No. 31]. For the reasons stated herein,
First American's motion is GRANTED and Cherry Hill's
motion is DENIED.
case arises out of a title insurer's decision not to
cover a counterclaim made against an insured by a third
party. The insured, Cherry Hills, is a land developer that
purchased real property located at 2 Cherry Hills Farm Court,
Englewood, Colorado 80113 (the “property”). ECF
No. 3 ¶ 8. On June 23, 2015 First American issued title
insurance to Cherry Hills regarding this property. ECF No. 30
¶ 1. The title insurance policy covered loss or damage
by ten specified risks, including “[a]ny defect in or
lien or encumbrance on the Title.” ECF No. 30-1 at
FATIC 000620. First American agreed to pay “costs,
attorneys' fees, and expenses incurred in defense of any
matter insured against by [the] policy, but only to the
extent provided in the Conditions.” ECF No. 30 ¶
2. In the Conditions, First American limited coverage to
“only those stated causes of action alleging matters
insured against by this policy.” Id. ¶ 3.
purchasing the land, Cherry Hills discovered that it included
an area of disputed property. Id. ¶ 6.
Neighbors Chris and Michelle Zobolas had erected a fence, a
garden, and an irrigation system on this disputed property.
Id.; ECF No. 31-4 at 3. The Zobolases had installed
the last of these improvements in 2006, long before Cherry
Hills purchased the property. ECF No. 31 at 10.
September 8, 2016 Cherry Hills filed a complaint in the
Arapahoe County District Court against the Zobolases seeking
damages for trespass and a decree quieting title relative to
the disputed area of property. ECF No. 30 ¶ 6; ECF No.
31-4 at 3. On October 5, 2016 the Zobolases asserted two
counterclaims: (1) for adverse possession, quiet title, and
declaratory relief, and alternatively (2) for monetary
set-off for improvements. ECF No. 30 ¶ 8.
Hills tendered the claim and made demand upon First American
to pay indemnity and defense costs on April 21, 2017.
Id. ¶ 12. On May 8, 2017 First American
notified Cherry Hills that it accepted coverage for the
adverse possession counterclaim under a reservation of
rights. Id. ¶ 13. It retained Kirk Holleyman,
Esq., to defend Cherry Hills in the first counterclaim.
Id. However, First American denied coverage for the
monetary set-off counterclaim because it was “not an
alleged title defect.” ECF No. 31 ¶ 5.
trial between Cherry Hills and the Zobolases took place in
July of 2017. ECF No. 30 ¶ 14. On August 18, 2017 the
state court awarded Cherry Hills $305, 079 for its trespass
claim and found against the Zobolases on both counterclaims.
12, 2018, believing that First American was wrong to deny
coverage on the Zobolas' set-off counterclaim, Cherry
Hills filed a complaint against First American in the
Arapahoe County District Court. ECF No. 3. The complaint
asserts three claims: (1) declaratory judgment that First
American had a duty to defend the set-off counterclaim, (2)
breach of contract, and (3) insurance bad faith. Id.
¶¶ 16-30. It seeks damages for “annoyance,
inconvenience, loss of use of funds, attorney fees, [and]
costs and expenses relating to the [Zobolas
litigation].” Id. ¶ 24.
American removed the case to federal court on July 5, 2018,
pursuant to 28 U.S.C. §§ 1332 and 1441. ECF No. 1.
It then filed a motion for summary judgment on March 19, 2019
seeking to dismiss all of Cherry Hills' claims. ECF No.
30 at 1. First American argues that (1) it did not breach its
duty to defend Cherry Hills in the Zobolas litigation and (2)
where there is no breach of contract, there is no basis for a
bad faith claim. Id. at 6, 12. In response, Cherry
Hills filed a cross motion for summary judgment. ECF No. 31.
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 & Cty. of Denver, 36 F.3d 1513, 1517 (10th
Breach of Contract
Hills asserts that First American's failure to defend the
Zobolas' set-off counterclaim constitutes a breach of
contract. ECF No. 31 ¶ 8. It argues (1) that the title
insurance policy by its terms covers the Zobolas' set-off
counterclaim, and (2) that even if not, First American is
obligated to cover the set-off counterclaim under the
“complete defense” rule. I address each argument