Sterling Construction Management, LLC v. Steadfast Insurance Company et al

Filing 198

ORDER. The Court declines to 184 reconsider Judge Kriegers order. It preserved the issue for further examination. Denying 186 Motion to Bifurcate, by Judge R. Brooke Jackson on 12/19/11.(lsw, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Honorable R. Brooke Jackson
Civil Action No. 09-cv-02224-RBJ-MJW
STERLING CONSTRUCTION MANAGEMENT, LLC
Plaintiff,
v.
STEADFAST INSURANCE COMPANY and
CHASE CONTRACTORS, INC.
Defendants,
AND
CHASE CONTRACTORS, INC
Third-Party Plaintiff,
v.
WILLBROS ENGINEERS, INC.
Third-Party Defendant.

ORDER

This matter comes before the Court on Steadfast Insurance Company’s Motion for
Reconsideration (#184) and Steadfast’s Renewed Motion to Bifurcate Liability Claims from
Insurance Claims for Trial (#186). The motions have been fully briefed, and the Court received
oral argument from counsel.
Facts
Sterling Construction Management, Inc. (“Sterling”) was hired by Overland Pass Pipeline
Company, LLC (“Overland”) to construct 157 miles of pipeline from Laramie, Wyoming to
1

Sterling, Colorado. Sterling, acting as a general contractor, engaged Chase Contractors
(“Chase”) to perform horizontal directional drills and bores. On or about January 26, 2008
Chase drilled under the North Sterling Irrigation Canal and ruptured the canal. As a result of the
rupture, damage was caused to the canal, property, and the pipeline work. Sterling repaired the
breach and indemnified Overland. Sterling withheld payments due to Chase and filed this action
against Chase and against Sterling’s liability insurance carrier, Steadfast Insurance Company
(“Steadfast”), seeking recovery of the costs to repair the canal and indemnify Overland. Chase
counterclaimed for the payments that Sterling withheld and also brought a third-party complaint
against the engineering firm which oversaw the pipeline’s construction, Willbros Engineers, Inc.
The third-party complaint was dismissed on motion brought by Willbros.
Steadfast filed a Motion for Summary Judgment on December 29, 2010 (#143). On
September 6, 2011 the Court, by Hon. Marcia Krieger, denied the motion in part (#177). The
case was reassigned from Judge Krieger to Judge Jackson on September 26, 2011. Steadfast
now requests that Judge Jackson reconsider two parts of Judge Krieger’s order and find that (1)
Steadfast had no duty to provide coverage to Sterling for counterclaims filed by Chase against
Sterling, and (2) Steadfast had no duty to provide coverage to Sterling for the portion of the
funds Overland withheld from Sterling that represents attorney’s fees and costs incurred by
Overland in response to claims submitted to Overland by third parties.
Motion for Reconsideration [#184].
Standard of Review
The Federal Rules of Civil Procedure do not formally recognize motions to reconsider.
However, a party may file a motion seeking relief from a judgment pursuant to Fed. R. Civ. P.
60(b). Van Skiver v. U.S., 952 F.2d 1241, 1243 (10th Cir. 1991). District courts have discretion

2

to grant relief under Rule 60(b), although “such relief is extraordinary and may only be granted
in exceptional circumstances.” Hillard v. District Court of Comanche County, 100 Fed. Appx.
816, 818-19 (10th Cir. 2004). A Rule 60(b) motion is not a substitute for a direct appeal, and the
petitioner may not simply “[revisit], albeit in somewhat different forms, the same issues already
addressed and dismissed by the court.” Van Skiver, 952 F.2d at 1243. “Advancing new
arguments or supporting facts which were otherwise available for presentation when the original
summary judgment motion was briefed is likewise inappropriate.” Id. at 1243 (internal citations
omitted). A motion for reconsideration is only appropriate where “the court has misapprehended
the facts, a party’s position, or the controlling law.” Servants of Paraclete v. Does, 204 F.3d
1005, 1012 (10th Cir. 2000).
Steadfast maintains that reconsideration is appropriate in this instance under Rule 60(b),
in order to correct the Court’s errors in applying Colorado law. Steadfast argues that the Court
incorrectly applied Colorado law in two ways (1) by incorrectly failing to hold that Steadfast had
no duty to indemnify Sterling for its counterclaim; and (2) by incorrectly applying the burden of
proof in finding that Steadfast did not provide sufficient documentation to supports its claim that
attorney’s fees and costs were not covered under the policy.
Steadfast’s Duty to Defend or Indemnify Sterling against Chase’s Counterclaim
This concerns Chase’s counterclaim in which it alleges that Sterling broke its contract by
withholding payment for services as to which Sterling has no complaint. Steadfast argues that
because its policy provides coverage only for “property damage” caused by an “occurrence,”
meaning an accident, it neither has a duty to defend Sterling against this claim (as Judge
Krieger’s order agreed) nor to indemnify Sterling in respect to any damages that might be
awarded against Sterling on that claim (which Judge Krieger’s order did not address).

3

I agree with Steadfast. Moreover, it became apparent during oral argument that Sterling
does not disagree. Accordingly, the motion for reconsideration is granted on this issue. The
Court holds that Steadfast has no obligation to defend or indemnify Sterling in respect to Chase’s
breach of contract counterclaim.
I hasten to add, however, that this does not affect whatever obligation Steadfast might
have to reimburse Sterling for the funds, estimated at $340,000, that Sterling spent making
repairs as a result of Chase’s alleged negligence. Steadfast is not entitled to the benefit of
Sterling’s “self-help” in setting off monies it owes to Chase under the contract against Chase’s
obligation to Sterling for its alleged negligence.
Attorney’s Fees and Costs
This concerns the approximately $687,000 that Overland owed to Sterling but withheld
as an offset to account for losses incurred by Overland due to the canal rupture. Steadfast
apparently does not dispute that it is liable for a substantial part of that amount. However, it
argues that to the extent that the amount includes attorney’s fees and costs incurred by Overland
in responding to third-party claims, coverage is excluded.
The insurance contract that Sterling purchased from Steadfast contains a “contractual
liability exclusion.” It excludes coverage for property damage (or bodily injury) for which the
insured is obligated to pay damages by the reason of the assumption of liability in a contract or
agreement.” However, the exclusion contains an exception, i.e.,
This exclusion does not apply to liability for damages:
(1) That the insured would have in the absence of the contract or agreement, or
(2) Assumed in a contract or agreement that is an “insured contract” provided the
“bodily injury” or “property damage” occurs subsequent to the execution of
the contract or agreement. Solely for the purposes of liability assumed in an
“insured contract” reasonable attorney’s fees and necessary litigation expenses

4

incurred by a party other than an insured are deemed to be damages because
of “bodily injury” or “property damage”, provided:
a. Liability to such party for, or for the cost of, that party’s defense has also been
assumed in the same “insured contract”; and
b. Such attorney’s fees and litigation expenses are for defense of that party
against a civil or alternate dispute resolution proceeding in which damages to
which this insurance applies are alleged.
Ex. B to Motion for Reconsideration at STD 00134 (emphasis added).
There appears to be no dispute that Sterling’s contract with Overland was an “insured
contract,” and therefore, that the exception to the exclusion is triggered. Steadfast argues,
however, that Sterling has not shown that the attorney’s fees and costs incurred by Overland
were for “defense against a “civil or alternate dispute resolution proceeding.”
Judge Krieger found that Steadfast had failed to support its contention that the fees and
costs were not incurred for the defense of a civil or alternate dispute resolution proceeding and
concluded that summary judgment was therefore inappropriate under Fed. R. Civ. P. 56(c)(1).
Order at 21. Steadfast argues that Judge Krieger misunderstood the placement of the burden.
Steadfast submits that because Sterling relies on an exception to an exclusion, it was Sterling’s
burden to establish that the fees and costs were incurred in the defense of a civil or alternate
dispute resolution proceeding. It argues that Judge Krieger mistakenly placed the burden to
show the contrary on Steadfast. In any event, Steadfast argues, it is “undisputed” that there was
no civil or alternate dispute resolution proceeding.
In response Sterling does not address the burden of proof (or the burden of going
forward). However, it denies that it is undisputed that the fees and costs were not incurred in an
alternate dispute resolution proceeding. It cites evidence submitted in response to Steadfast’s
motion for summary judgment to the effect that the fees and costs were incurred to resolve

5

(settle) third party claims. Sterling suggests that this constituted “an alternate disputed resolution
process.” Response at 7.
The parties have not fully addressed the placement of the burden of proof or going
forward. I accept for present purposes the proposition that the insured has the burden of going
forward with respect to an exception to an exclusion. Leprino Foods Co. v. Factory Mut. Ins.
Co., 453 F. 3d 1281, 1287 (10th Cir. 2006). However, neither party addresses whether the
insured or the insurer has the burden of establishing what amounts to an exception to the
exception.
More importantly in my view, neither party has briefed the meaning of the term
“alternate dispute resolution proceeding” as that term is used in this insurance policy. It
apparently is not defined in the policy. It is not capitalized or placed in quotes. On its face, at
least, it could be said to mean what it seems to say, i.e., that it is a proceeding that is an
alternative to civil litigation. Might this include informal settlement negotiations designed at
least in part to avoid litigation and its attendant expense? Is it necessarily limited to a formal
proceeding conducted by a professional such as the proceedings described in Colorado’s Dispute
Resolution Act, C.R.S. 13-22-301 et seq.? The parties simply have not addressed this
fundamental legal question.
Depending on the meaning of the term, which ultimately is a matter of law for the Court
to decide, there may or may not be a genuine issue of material fact regarding some or all of the
sums incurred by Overland for attorney’s fees and costs (the composition of which is unknown
to the Court at this point). Because neither the burden of proof (or going forward) nor the
interpretation of the term “alternate dispute resolution proceeding” has been thoughtfully

6

addressed and briefed, the Court declines to reconsider Judge Krieger’s order. It preserved the
issue for further examination, which in the circumstances is how it should be.
Motion to Bifurcate [#186]
Steadfast wishes to bifurcate trial of Sterling’s contract and negligence claims against
Chase (Fifth and Sixth Claims for Relief) from the trial of Sterling’s insurance claims against
Steadfast (First through Fourth Claims for Relief). Steadfast first moved for bifurcation on
October 5, 2010. Chase opposed bifurcation “to the extent that it would require duplication of
the presentation of any evidence involving Chase.” Sterling opposed bifurcation, claiming that it
would be unfairly prejudiced by having to call witnesses twice and by incurring extra expense.
The Court denied that motion without prejudice, indicating that it would consider the issue at the
pretrial conference stage. The issue is now before the Court on Steadfast’s renewed motion to
bifurcate.
A district court may order separate trials for one or more separate issues, claims, or
crossclaims “[f]or convenience, to avoid prejudice, or to expedite and economize.” Fed. R. Civ.
P. 42(b). Courts have “broad discretion in deciding whether to sever issues for trial.” Easton v.
City of Boulder, Colo., 776 F.2d 1441, 1447 (10th Cir. 1985).
I do not disagree with Steadfast that the remaining claims can be separated into two
relatively distinct sets of issues, i.e., (1) Sterling’s claim that Chase negligently (and in breach of
contract) caused the canal breach vs. Chase’s claim that it should be paid for the work that it
performed well; and (2) Sterling’s insurance coverage claims against Steadfast. Steadfast argues
that separating those issues into two distinct trials will promote judicial economy and avoid jury
confusion. I am not convinced.

7

Bifurcation would presumably achieve a degree of economy for Steadfast, in that it
would not have to participate in a Sterling v. Chase trial. By the same token, bifurcation would
cause Sterling, at a minimum, to incur extra expense by having to participate in two trials and to
call witnesses twice.
Steadfast expresses concern about juror confusion. It cannot be denied that there would
be a degree of simplification by having Sterling’s claims against Chase resolved before we
plunge into the insurance issues. However, I am not convinced that there is substantial risk of
juror confusion here. Jurors are often asked to comprehend issues in civil litigation that are
considerably more complex than the issues in this case. Clear instruction by the Court and clear
presentations by counsel should enable jurors to understand the two sets of issues.
The more fundamental issue is whether any party would be unfairly prejudiced by a single trial.
“While economy and convenience may properly be considered in the decision to bifurcate,
neither is the ultimate objective. A paramount consideration at all times in the administration of
justice is a fair and impartial trial to all litigants. Considerations of economy of time, money and
convenience of witnesses must yield thereto.” Martin v. Bell Helicopter Co., 85 F.R.D. 654, 658
(D. Colo. 1980) (internal citations omitted). “[B]ifurcation is an abuse of discretion if it is unfair
or prejudicial to a party.” Angelo v. Armstrong World Industries Inc., 11 F.3d 957, 964 (10th
Cir. 1993).
The parties claiming “prejudice” are the two parties opposing bifurcation. Sterling in
particular expresses concerns about delay and extra expense. Steadfast’s only suggestion of
possible prejudice, apart from a relatively small expansion of the trial to include evidence that
might not be necessary in a trial solely dedicated to the insurance issues, is its statement that “the
adjudication of the claims will require the introduction of evidence of insurance, which is

8

generally precluded under F.R.E.411.” Motion ¶18. The argument makes no sense to me. As
Steadfast indicates, preclusion of evidence that a party is covered by insurance is based on the
concern that such evidence might induce jurors to decide cases on improper grounds. Thus, for
example, if Chase were covered by liability insurance, it is at least arguable that a juror might be
more likely to enter a verdict against Chase on Sterling’s negligence claim if the juror believed
that the verdict would be covered by insurance. However, Steadfast does not insure Chase. The
only claim against Steadfast’s insured, Sterling, is the breach of contract claim that is not
covered by insurance. I do not see how the fact that evidence that Sterling is insured would be
heard by the jury that decides the Sterling v. Chase issues is likely to cause prejudice to
Steadfast.
Accordingly, the Court finds no good cause to bifurcate the trial. The motion is denied.
DATED this 19th day of December, 2011.
BY THE COURT:

___________________________________
R. Brooke Jackson
United States District Judge

9