American Family Mutual Insurance Company v. Teamcorp, Inc. et al
ORDER on Motion to Reopen. Order denying 186 Motion to Reopen Case by Chief Judge Wiley Y. Daniel on 12/16/11.(jjh, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Chief Judge Wiley Y. Daniel
Civil Action No. 07-cv-00200-WYD-MJW
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin insurance
TEAMCORP, INC., a Colorado corporation, d/b/a LACONIA HOMES and DRAFT-TEK;
PLATT T. HUBBELL;
KELLEY S. HUBBELL; and
ORDER ON MOTION TO REOPEN
THIS MATTER is before the Court on Defendants Teamcorp, Inc. d/b/a Laconia
Homes and Draft-Tek [collectivelyATeamcorp@] and Kerry Karnan=s [AKarnan@] Motion for
Case to be Reopened for Good Cause for Adjudication of the Duty to Indemnify and the
Reimbursement of Defendants= Attorney=s Fees, filed June 13, 2011. (ECF No. 186
[hereinafter ATeamcorp=s Motion to Reopen@].) The motion requests that the case be
reopened for good cause to adjudicate the remaining two issues. (Id. at 1.) Those
issues are whether American Family Mutual Insurance Company [AAmerican Family@] has
a duty to indemnify, and whether it is required to pay attorney=s fees incurred by
Teamcorp and Karnan in defense of this declaratory judgment action. (Id. at 4.)
This case was administratively closed on September 22, 2009. (Order on Summ.
J. Mots. 34, Sept. 22, 2009, ECF No. 185.) It is an anticipatory declaratory judgment
action by American Family seeking declaration of the parties= rights under the
Commercial General Liability policy issued by American Family to ALaconia Homes, Inc.@
and later by endorsement to ATeamcorp., Inc. d/b/a Laconia Home and Drafttech [sic]@.
The Amended Complaint asserts, inter alia, claims for declaratory judgment of no
coverage and recovery of defense costs incurred in defending Teamcorp in an Amended
Third-Party Complaint filed by Platt and Kelley Hubbell. Teamcorp=s Counterclaim
seeks attorney=s fees and costs incurred in connection with the defense of this
declaratory judgment action.
In February 2009, both parties filed motions for summary judgment. In an Order
dated September 22, 2009, this Court granted summary judgment in favor of the
Defendants regarding American Family=s duty to defend Teamcorp and Karnan in Alpine
Bank v. Platt T. Hubbell, et al. v. Carney Brothers Construction, et al. [hereinafter Athe
underlying action@]. (Order 34-35, ECF No. 185.) The Order on Summary Judgment
stated that because the underlying action was not resolved, the issue of whether
American Family had a duty to indemnify was premature. (Id. at 34.) Further, the Order
found that resolution of the Counterclaim for attorney=s fees and costs was premature.
(Id. at 33.) This case was administratively closed, to be Areopened for good cause,
which shall include the parties= representation in a motion to reopen this case that the
underlying trial before Judge Arguello has been completed and that the parties intend to
prosecute the duty to indemnify in this case.@ (Id. at 34.)
Pursuant to the Order on Summary Judgment Motions, American Family funded
the defense and settlement of the underlying action. (Pl.=s Resp. in Opp=n to Def.=s Mot.
to Reopen Case 1, ECF No. 188 [hereinafter APl.=s Resp.@].) The underlying action has
been dismissed with prejudice upon being resolved in May 2011 by a settlement funded
by American Family. (Id.) Because the underlying action has been resolved, the issue
as to whether American Family has a duty to indemnify and Teamcorp=s Counterclaim for
attorney=s fees and costs are ripe for review.
In the underlying action, the Amended Third-Party Complaint alleged, inter alia,
negligence, breach of contract, and negligent misrepresentation by Teamcorp in the
design and construction of the Hubbell=s home. (Pl.=s Mot. for Summ. J., Ex. 1.) It also
alleged negligence by Karnan in the design of their home. (Id.) American Family
defended Teamcorp and Karnan in that action, which ultimately resolved in a settlement
that was fully funded by American Family. (Pl.=s Resp. 1.)
The policy at issue in this case, which was the basis for American Family=s defense
of Teamcorp and Karnan, is numbered 05-XE6895. (Pl.=s Mot. for Summ. J., Ex. 2,
excerpt of certified copy of the policy.) It is a policy issued by American Family to the
named insured ALaconia Homes, Inc,@ a corporation, with an inception date of February 2,
2003, and the policy includes ACommercial General Liability Coverage@. The policy
lapsed and was reissued with number 05-XE6895-02. Id.
Throughout the Policy, the terms Awe@, Aus@ and Aour@ refer to the company
providing the insurance, American Family. The ACommercial General Liability Coverage
Form@ of the Policy contains the following terms and provisions:
SUPPLEMENTARY PAYMENTS - COVERAGES A AND B
We will pay, with respect to any claim we investigate or settle, or any >suit=
against an insured we defend:
All reasonable expenses incurred by the insured at our request to
assist us in the investigation or defense of the claim or >suit= . . . .
(Pl.=s Mot. for Summ. J., Ex. 2). Coverage A is for bodily injury and property damage
liability and Coverage B is for personal and advertising injury liability. (Id.) A Asuit@ is
defined in the Policy as Aa civil proceeding in which damages because of >bodily injury=,
>property damage= or >personal and advertising injury= to which this insurance applies are
The Parties= Arguments
Defendants Teamcorp and Karnan move to reopen the case for good cause,
asserting that the underlying action is resolved and that they are entitled as a matter of
Colorado law to the reimbursement of attorney=s fees and costs incurred in defense of this
declaratory judgment action. Specifically, Teamcorp and Karnan assert that the issue as
to the duty to indemnify is not moot, the issue of reimbursement of attorney=s fees
requires resolution and that they are entitled to attorney=s fees if American Family has a
duty to indemnify. Further, Teamcorp and Karnan state that the basis for the award of
attorney=s fees is contractual. Because the policy language states that American Family
will reimburse all reasonable expenses incurred by Teamcorp and Karnan, they assert
that they are entitled to attorney=s fees in defense of this action.
American Family responds that it would be futile to reopen the case. It argues
that under current Colorado case law, Teamcorp and Karnan cannot collect attorney=s
fees for defending this declaratory judgment action. Further, American Family has
represented in its response that it will not seek to reopen the case to litigate American
Family=s duty to indemnify if Teamcorp=s Motion to Reopen is denied.
Standard to Reopen
This case was administratively closed pursuant to D.C.Colo.LCivR. 41.2, which
provides that a case may be reopened for good cause. Generally, there would be good
cause to reopen when, as here, the parties wish to litigate the remaining issues that have
become ripe for review. However, I agree with American Family that it does not make
sense to reopen the case if Teamcorp and Karnan are unable to obtain the relief they
seeknan award of their attorney=s fees and costs incurred in defending against this
declaratory judgment action. On that issue, American Family asserts that I should apply
the law as to futility applicable to a motion to amend, as it is analogous in this
circumstance. Under that law, A[a] district court may refuse to allow an amendment if it
would be futile.@ Anderson v. Suiters, 499 F.3d 1228, 1238 (10th Cir. 2007). A>A
proposed amendment is futile if the complaint, as amended, would be subject to
dismissal.=@ Id. (quotation and internal quotation marks omitted).
Numerous courts have applied the futility concept in the context of a motion to
reopen a case. See A123 Systems v. Hydro-Quebec, 626 F.3d 1213, 1216 (Fed. Cir.
2010) (affirming denial of motion to reopen case on grounds of futility); Redmond v. Fifth
Third Bank, 624 F.3d 793, 803 (7th Cir. 2010) (holding that a closed bankruptcy
proceeding should not be reopened Awhere it appears that to do so would be futile and a
waste of judicial resources.@) (citation omitted)); Nesmith v. Gen. Motors Corp., 2006 U.S.
Dist. LEXIS 69153 at *7 (W.D.N.Y. 2006) (AYclearly it would be futile to grant plaintiffs'
motion to reopen the case, only to have summary judgment entered against plaintiffs@);
see also Cent. Reg=l Employees Benefit Fund v. Cephalon, Inc., 2010 U.S. Dist. LEXIS
29677 at *18 (D.N.J. 2010); Gyadu v. Appellate Court, 2010 U.S. Dist. LEXIS 85735 at
*4-5 (D. Conn. 2010). I find that the futility concept also should be applied in this case.
Therefore, I will deny Defendants= motion to reopen if the relief sought by Teamcorp and
KarnanCthe award of attorneys= fees and costsCwould be futile.
Whether an Award of Attorney=s Fees and Costs is Proper
It is well settled law that each party must generally bear its own legal expenses in a
lawsuit. Cont=l W. Ins. Co. v. Heritage Estates Mut. Hous. Ass=n, 77 P.3d 911, 913 (Colo.
App. 2003) [hereinafter AHeritage Estates@]. This rule, called the American Rule, is
subject to express statute, court rule, or private contract to the contrary. Id. Here,
Teamcorp and Karnan assert that the contractual language in the policy allows them to
collect their attorney=s fees in defending this declaratory judgment action. They argue
that reimbursement terms similar to the one in the policy have been found to constitute a
contract that allows the insured to collect attorney=s fees in declaratory judgment actions
brought against the insured by the insurer. While there is little case law on this issue and
the early cases seem to support Teamcorp=s and Karnan=s assertion, I find that the
contract in this case is more narrow and that the most recent case law does not favor
Teamcorp and Karnan, as discussed below.
Defendants Teamcorp and Karnan argue that Allstate Insurance Co. v. Robins,
597 P.2d 1052 (Colo. App. 1979), is controlling law and should be applied in this case. In
Robins, Allstate brought a declaratory judgment suit against its insured to determine
whether automobile insurance coverage existed for an accident in which the insured was
involved. The trial court found that there was coverage, and also entered judgment in
favor of the insured on his counterclaim for expenses in defending the declaratory
judgment suit. The policy at issue in the case provided that the insurer shall Areimburse
the Insured for all reasonable expenses, other than loss of earnings, incurred at the
Company's request.@ Id. at 1052. Allstate appealed, contending that the court erred in
awarding attorney's fees to the insured. Id.
The trial court=s decision was affirmed on appeal. The court of appeals cited other
courts that had found the insurer should pay the insured=s expenses incurred in defending
a declaratory judgment action seeking a judgment of no coverage. Id. at 1052-53. It
All of the cited cases involve the construction of the phrase, Athe company
shall reimburse the insured for all reasonable expenses incurred at
company's request,@ and its application to payment of attorney's fees
expended by the insured in defending a declaratory judgment action
instituted by the insurance company. In each case the court allowed the
insured to recover its expenses (reasonable attorney's fees) as a matter of
contract. This result merely restores the insured to the position he would
have occupied had the company honored its contract in the first instance,
and we adopt it as the applicable principle.
Id. at 1053. This case does tend to support Teamcorp’s and Karnan’s argument.
American Family contends, however, that Robins is no longer good law. To the
extent that Robins= reasoning is based on an exception to the American Rule based on
language in a contract, it appears to still be valid law. I agree, however, with the Tenth
Circuit=s finding that this holding of Robins Astands only for the proposition that attorneys
fees may be recovered as provided under the express terms of a contract.@ Wellens v.
Columbia Cas. Co., No. 91-1049, 1991 WL 216484, at *1 (10th Cir. Oct. 23, 1991)
(unpublished). However, I find that Robins= continued validity is questionable to the
extent that its reasoning is based on public policy. See Heritage Estates, 77 P.3d at 915;
Bernal v. Lumbermens Mut. Ins. Co., 97 P.3d 197, 203 (Colo. App. 2003).
Regardless of the continued viability of Robins, I find it is not controlling because
there is more recent and on point case law to guide my determination in regard to the
contractual language in the policy. In Allstate Ins. Co. v. Huizar, 52 P.3d 816 (Colo.
2002) [Huizar II], the insured initially sought and was awarded benefits under her policy in
an arbitration proceeding for injuries she suffered in a car accident. Id. at 817. Allstate
then sought a trial de novo pursuant to a policy provision allowing it to do so. Huizar
moved to dismiss the action and to affirm the arbiter's award. Id. The trial court
concluded that the provision permitting a trial de novo violated public policy and was void,
and therefore confirmed the arbitration award. Id. at 818.
The case was appealed and then remanded to the trial court. Huizar, 52 P.3d at
818. Huizar was then awarded her attorneys fees incurred in successfully challenging
the validity of the trial de novo provision and for successfully litigating the attorney fees
issue. Id. The trial court concluded that Huizar was entitled to fees by the express
provisions of the policy obligating Allstate to defend an insured person and pay
reasonable expenses incurred at Allstate's request. Id. Specifically, the policy
obligated Allstate to Adefend an insured person sued as the result of a covered auto
accident@ and to pay as part of that defense any Aother reasonable expenses incurred at
[the insurance company's] request.@ Id. at 819.
When Allstate appealed the award of fees, Athe court of appeals affirmed, not only
agreeing with the trial court's construction of the contract but also holding that the public
policy considerations articulated@ by the court in Huizar v. Allstate Ins. Co., 952 P.2d 342
(10th Cir. 1998) [“Huizar I”] Ashould be interpreted to authorize the award of fees under
the limited circumstances of this case.@ Huizar II, 52 P.3d at 819. AThe court of appeals
analogized Allstate's exercise of its trial de novo right under the uninsured motorist
provisions of the policy to a suit against Huizar for declaratory judgment@, and Afound that
Allstate was obligated by the terms of the policy to defend Huizar against its own >suit= and
to pay her attorney fees as reasonable expenses incurred at Allstate's request.@ Id.
On appeal, the Colorado Supreme Court noted the general American Rule that Ain
the absence of an express statute, court rule, or private contract to the contrary, attorney
fees generally are not recoverable by the prevailing party in a contract or tort action.@
Huizar II, 52 P.3d at 818. It then stated that the interpretation of an insurance policy is a
matter of law, and held:
The language of the insurance policy at issue here cannot be reasonably
construed to obligate the insurer to defend the insured against a claim of the
insurer itself, much less to pay the insured's legal expenses to challenge the
validity of the provisions of the contract. It is clear from the organization of
the policy and the location of its reference to payment of expenses, the fact
that other sections of the policy contain different provisions concerning
attorney fees, and the context and express descriptions of the insurer's
obligations that the insurer's obligation to defend extends only to suits by
third parties with claims against the insured person.
Id. at 819.
More specifically, the Huizar II court noted that A[o]rganizationally, the contract is
divided into a number of >Parts,= each dealing with a different type of coverage@, and a
section of AGeneral Provisions.@ 819 P.2d at 819. It further noted that the language
relied on by the lower courts did not appear in any generally applicable provision of the
policy but in APart 1@ for AAutomobile Liability Insurance,@ which was devoted to an insured
person's liability for bodily injury or destruction of property. The court held that A[n]othing
in either the context or specific language of the insurer's promise to defend and pay
reasonable expenses suggests any intent for it to apply beyond the >Part= of the contract
in which it is found.@ Id.1
The Huizar court then concluded on the issue of the contract:
From both the context and plain meaning of the terms, it is clear that the
insurer's duty to defend described in APart 1@ of the contract, . . is intended
to apply only to suits against the insured person by third parties. Apart from
the fact that the insured's coverage for his own personal injury and property
damage are treated elsewhere in the contract, the term liability insurance is
generally used to refer to the insured's liability to a third party. . . .If it were
not sufficiently clear from the title and scope of APart 1@ alone that a defense
against a claim of liability necessarily refers only to a suit by a third person,
the policy provision specifically describes the defense Allstate must provide
as one in which Allstate Awill choose the counsel,@ and one in which Allstate
may settle any claim or suit.@ These provisions are simply incompatible with
any intent to require the insurance company to defend or pay attorney fees
to the insured in an action by or against the insurance company itself.
Id. Since the insurance contract did not contain any express exception to the American
rule that each party must bear its own legal expenses that was applicable to Huizar's
successful challenge to the trial de novo provision of the contract, the court found that
attorney fees were not properly awarded to Huizar under the contract.
The Colorado Supreme Court in Huizar II then turned to the court of appeals=
additional holding that Athe public policy considerations upon which this court found the
trial de novo clause void in Huizar I justify an award of attorney fees that would otherwise
absorb all of the uninsured motorist monies awarded by arbitration.@ 52 P.3d at 820.
The Court noted that Colorado Arecognize[s] several exceptions to the general rule that
attorney fees are not recoverable by the prevailing party in the absence of an express
statute, court rule, or private contract to the contrary@ but stated Awe have previously
made clear that the creation of a new exception is >a function better addressed by the
legislative than the judicial branch of government.=@ Id. at 820-21 (quotation omitted).
The Court concluded that Aneither the statutes nor legislatively expressed policy
considerations relied upon in Huizar I create an exception to the rule that each party in a
contract action bear its own legal expenses@, and reversed the court of appeals= opinion.
Id. at 821.
In Heritage Estates, another instructive case, the insured filed a claim with the
insurance company to pay for biohazard cleanup on a property that was insured by the
insurance company. 77 P.3d at 912. The insurance company filed a declaratory
judgment action seeking a declaration that the claim was not covered, and the trial court
found that coverage was available. Id. The insured Athen filed a motion seeking
recovery of its attorney fees, asserting authorization under the insurance policy language@
and statute. Id. Following a hearing, the trial court determined that an award of
attorney fees was appropriate pursuant to Huizar I and C.R.S. ' 10-3-1104(1)(h)(VII).
On appeal, the insurer contended that the trial court erred in awarding attorney
fees. Heritage Estates, 77 P.3d at 912. The insurer argued that because the Colorado
Supreme Court reversed Huizar I, decided after the appeal was filed, and because
attorney fees are not authorized under the insurance contract or the cited statute, the trial
court incorrectly awarded fees. Id. at 912-13. The court of appeals agreed. Id. at 913.
It first noted that the language in the policy stated that the insurer would pay the insured
Aall reasonable expenses incurred by the insured at our request to assist us in the
investigation or defense of the claim or >suit=.@ Id. It then found Aa number of reasons@
that the contract language did not support an award of attorney=s fees. Id.
As to these reasons, the court first noted that the provision was in the liability
section of the contract, which required the insured to defend and pay sums the insured is
legally obligated to pay because of bodily injury or property damages sustained by third
parties. Heritage Estates, 77 P.3d at 913. Indeed, the court noted that Athe term
>liability insurance= generally refers to the insured's liability to a third party.@ Id. (citing
Huizar II, 52 P.3d at 820). Second, the court noted that the insured sought coverage for
cleanup costs under the property coverage portion of the policy, obligating the insurer to
pay for first party claims, Awhich contain[ed] no provision addressing payment of the
insured's attorney fees.@ Id. Third, the court found that Athe policy provision specifically
states that it applies only to instances in which Continental must defend a claim or suit
and for which it seeks the assistance of Heritage@, and that A[a] common-sense reading
leads to the conclusion that the provision applies only when Continental is defending
Heritage against a third-party claim or suit.@ Id. The court noted that this holding was
consistent with the holding in Huizar II.
The Heritage Estates court then addressed the insured=s argument that Abecause
it filed counterclaims, Continental was required >to defend= against those claims and
Heritage incurred expenses related to that defense.@ 77 P.3d at 914. It rejected this
The notion that in this suit Heritage incurred expenses pursuant to
Continental's >request to assist [Continental] in the investigation or defense
of the claim or suit= is a strained construction at best. Heritage did not assist
Continental in this suit, nor did Continental request Heritage's assistance.
To interpret that provision to apply when Continental is Adefending@ a
counterclaim brought by its own insured would be an absurd interpretation,
which we must avoid.
Id. Accordingly, the court found that Abecause the insurance contract does not contain
any applicable express exception to the well-established rule that each party must bear
its own legal expenses, Heritage is not entitled to attorney fees based on the contract
The Heritage Estates court also distinguished the Robins case which the insured
relied on. 77 P.3d at 915. It found that, [u]nlike here, in Robins the reimbursement
language was apparently not limited to any particular coverage and was clearly broader
than that in Continental's policy.@ Id. AHere, as noted, the reimbursement language
applies only in a liability setting, one that is not implicated under these facts.@ Id.
Applying these cases, I find that the insurance policy at issue here does not
support an award of attorney=s fees for Teamcorp and Karnan in this declaratory
judgment action. The contract language in this case is essentially identical to the
contract language in Huizar II and Heritage Estates, and is found in the liability section of
the policy. Therefore, just as in those cases, a common-sense reading of the contract
leads to the conclusion that the provision applies only when American Family is defending
Teamcorp and Karnan against a third-party claim or suit. A declaratory judgment action
by the insurer against the insured is obviously not a third-party claim or suit. Indeed, to
interpret the requirement of reimbursement of Areasonable expenses incurred by the
insured at our request to assist us in the investigation or defense of the claim or >suit=@ to
include the reimbursement of attorney=s fees in the defense of a declaratory judgment
instituted by the insurer is a strained construction, which I must avoid. Huizar II, 52 P.3d
It is also important to note that Asuit@, as defined in the contract, is Aa civil
proceeding in which damages because of >bodily injury=, >property damage= or >personal
and advertising injury= to which this insurance applies are alleged.@ This declaratory
judgment action does not fit that definition of a suit. I agree with American Family that
the Asuit@ here is the underlying Hubbell liability suit against Teamcorp and Karnan, not
the declaratory judgment action. The provision is referring to expenses incurred, at
American Family=s request, to assist in the investigation or defense of the Hubbell case B
the case defended and settled solely at the expense of American Family. This additional
limiting language, not present in Robins, distinguishes Robins and renders that case
I find from the foregoing that the plain meaning of the contract is clear. Any other
interpretation of the contract would violate the well-settled principles of contract
interpretation as set forth in Huizar II and Heritage Estates. See also Travelers Indem.
Co. v. Arena Group 2000, L.P., No. 05-CV-1435, 2008 WL 696392, at *10-12 (S.D. Cal.
March 13, 2008) (applying a substantially similar provision, the court stated, AIt would be
unreasonable to interpret this contract provision to mean that Gulf [insurer] has
requested, in its declaratory action, that the City assist Gulf in defending Gulf's suit
against the City. The reference to >suit[s]= Gulf defend[s]= clearly refers to suits for
damages that Gulf defends on behalf of the insured.@); accord Atl. Cas. Ins. Co. v.
Epstein, No. Civ.A.03-6506, 2004 WL 2075038, at *16 (E.D. Pa. 2004) (finding identical
language did not create a contract right to insured=s fees and costs spent defending
against insurer=s declaratory judgment action, since the insurer is not defending the
insured in the declaratory judgment action). Finally, I find no legislatively expressed
policy considerations for awarding Teamcorp and Karnan their attorneys= fees and costs.
Because Teamcorp and Karnan cannot succeed on their claim for attorney=s fees,
I find that reopening the case would be futile. Accordingly, I find that Teamcorp=s and
Karnan=s Motion to Reopen should be denied. It is therefore
ORDERED that the ADefendants Teamcorp, Inc. d/b/a Laconia Homes and
Draft-Tek and Kerry Karnan=s Motion for Case to be Reopened for Good Cause for
Adjudication of the Duty to Indemnify and the Reimbursement of Defendants= Attorney=s
Fees@ (ECF No. 186), filed June 13, 2011 is DENIED.
Dated this 16th day of December, 2011.
BY THE COURT:
s/ Wiley Y. Daniel
WILEY Y. DANIEL,
CHIEF UNITED STATES DISTRICT JUDGE
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?