Davis & Associates, P.C. et al v. Westchester Fire Insurance Company et al

Filing 60

ORDER. Under FED. R. CIV. P. 12(d), the Westchester Fire Insurance Companys and the Plus Companies, Inc.s Motion for Judgment on the Pleadings 27 filed 4/12/2011, is CONVERTED to a motion for summary judgment. The Westchester Fire Insurance Compan ys and the Plus Companies, Inc.s Motion for Judgment on the Pleadings 27 filed 4/12/2011, viewed as a motion for summary judgment, is GRANTED. The Plaintiffs Motion for Partial Summary Judgment and Memorandum Brief in Support 39 filed 8/23/2011, is DENIED. The plaintiffs Complaint and Jury Demand [1-3] is DISMISSED with prejudice. Judgment SHALL ENTER in favor of the defendants, Westchester Fire Insurance Company and the Plus Companies, Inc., against the plaintiffs, Davis & Associates P.C. n/k/a Davis Shilken, P.C., and Keith L. Davis, as to all claims and causes of action asserted herein. The Trial Preparation Conference, currently scheduled for 1/27/2012, as well as the trial, currently scheduled to commence on 2/6/2012, both are VACATED. The Defendants Motion To Continue Trial Date 56 is DENIED asmoot. The defendants are AWARDED their costs. By Judge Robert E. Blackburn on 1/24/2012.(sah, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Robert E. Blackburn
Civil Case No. 10-cv-03126-REB-CBS
DAVIS & ASSOCIATES, PC, n/k/a DAVIS SHILKEN, PC, and
KEITH L. DAVIS,
Plaintiffs,
v.
WESTCHESTER FIRE INSURANCE COMPANY, and
THE PLUS COMPANIES, INC.,
Defendants.
ORDER CONCERNING MOTIONS FOR SUMMARY JUDGMENT
Blackburn, J.
This matter is before the court on the following motions for summary judgment:
(1) Westchester Fire Insurance Company’s and the Plus Companies, Inc.’s Motion
for Judgment on the Pleadings [#27]1 filed April 12, 2011; and (2) Plaintiffs’ Motion
for Partial Summary Judgment and Memorandum Brief in Support [#39] filed
August 23, 2011. Responses [#28, #40] and replies [#30, #42] addressing both motions
were filed by the relevant parties. Under FED. R. CIV. P. 12(d), I convert the motion of
the defendants, Westchester Fire Insurance Co. and the Plus Companies, Inc., to a
motion for summary judgment. I grant the defendants’ motion for summary judgment,
and I deny the plaintiffs’ motion for summary judgment.

1

“[#27]” is an example of the convention I use to identify the docket number assigned to a
specific paper by the court’s case management and electronic case filing system (CM/ECF). I use this
convention throughout this order.

I. JURISDICTION
This court has jurisdiction over this case under 28 U.S.C. § 1332 (diversity).
II. STANDARD OF REVIEW
The defendants’ motion includes exhibits that are not part of the complaint in this
case. Based on the defendants’ use of those exhibits in support of their motion, the
plaintiffs ask that the defendants’ motion be converted to a motion for summary
judgment. The defendants argue that these exhibits may be considered in support of
their motion for judgment on the pleadings. The briefs concerning the plaintiffs’ motion
for partial summary judgment include some of the same exhibits. At this point, all
parties have had an opportunity to submit all of the exhibits and argument they consider
germane to the issues presented in the two motions. Thus, I conclude that it is
appropriate to convert the defendants’ motion for judgment on the pleadings [#27] to a
motion for summary judgment as permitted by FED. R. CIV. P. 12(d).
Summary judgment is proper when there is no genuine issue as to any material
fact and the movant is entitled to judgment as a matter of law.2 FED. R. CIV. P. 56(c);
Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265
(1986). A dispute is “genuine” if the issue could be resolved in favor of either party.
Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586,
106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Farthing v. City of Shawnee, 39 F.3d
1131, 1135 (10th Cir. 1994). A fact is “material” if it might reasonably affect the outcome
of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505,

2

The issues raised by and inherent to the motions for summary judgment are fully briefed,
obviating the necessity for evidentiary hearing or oral argument. Thus, the motions stand submitted on the
papers. Cf. FED. R. CIV. P. 56(c) and (d). Geear v. Boulder Cmty. Hosp., 844 F.2d 764, 766 (10th
Cir.1988) (holding that hearing requirement for summary judgment motions is satisfied by court's review of
documents submitted by parties).

2

2510, 91 L.Ed.2d 202 (1986); Farthing, 39 F.3d at 1134.
A party who does not have the burden of proof at trial must show the absence of
a genuine issue of fact. Concrete Works, Inc. v. City & County of Denver, 36 F.3d
1513, 1517 (10th Cir. 1994), cert. denied, 115 S.Ct. 1315 (1995). By contrast, a movant
who bears the burden of proof must submit evidence to establish every essential
element of its claim or affirmative defense. See In re Ribozyme Pharmaceuticals, Inc.
Securities Litigation, 209 F.Supp.2d 1106, 1111 (D. Colo. 2002).
In either case, once the motion has been properly supported, the burden shifts to
the nonmovant to show by tendering depositions, affidavits, and other competent
evidence that summary judgment is not proper. Concrete Works, 36 F.3d at 1518. All
evidence must be viewed in the light most favorable to the party opposing the motion.
Simms v. Oklahoma ex rel Department of Mental Health and Substance Abuse
Services, 165 F.3d 1321, 1326 (10th Cir.), cert. denied, 120 S.Ct. 53 (1999). However,
conclusory statements and testimony based merely on conjecture or subjective belief
are not competent summary judgment evidence. Rice v. United States, 166 F.3d
1088, 1092 (10th Cir.), cert. denied, 120 S.Ct. 334 (1999).
III. FACTS
This insurance coverage dispute arises from lawyer’s professional liability
insurance policies purchased by the plaintiffs from the defendants. The plaintiffs are
Davis & Associates, a law firm, and Keith L. Davis. I will refer to the plaintiffs
collectively as the Davis Firm. A former client of the Davis Firm, Ella Mae Bates, filed a
lawsuit against the Davis Firm alleging claims of professional negligence, breach of
implied warranty, and negligent misrepresentation. Response to motion for summary
judgment [#40], Exhibit 1-A (Bates Complaint). The defendant, Westchester Fire
3

Insurance Company (WFIC), refused to defend its insureds, the Davis Firm, in the Bates
litigation. Based on WFIC’s refusal to defend the plaintiffs in the Bates litigation and to
indemnify the plaintiffs against the claims asserted in the Bates litigation, the Davis Firm
asserts three claims in its complaint [#1-3]. The Davis Firm asserts claims for breach of
contract, bad faith breach of insurance contract, and violation of §§10-3-1115 and 10-31116, C.R.S.
A. THE BATES LITIGATION
It is undisputed that on March 29, 2009, a few days before coverage under the
2008 - 2009 policy ended, the Davis Firm notified WFIC of a potential claim resulting
from the plaintiffs’ representation of Ella Mae Bates. Plaintiffs’ motion for partial
summary judgment [#39], Exhibit 2-D. Even though this claim was reported to WFIC
during the coverage period of the 2008 - 2009 policy, the defendants argue that the
plaintiffs are not entitled to coverage under that policy because on the inception date of
the policy, April 1, 2008, the Davis Firm had a reasonable basis to believe that it had
breached a professional duty owed to Ms. Bates and that this breach might be expected
to result in a claim or suit. The defendants argue that paragraph B.2. of the coverage
provision quoted above excludes coverage of the Bates litigation from the policy.
In February, 2004, Ella Mae Bates retained the Davis Firm to create a trust (the
Bates Trust) that would enable Ms. Bates to qualify for Medicaid benefits. Ms. Bates
sought to transfer the majority of her assets into the trust for the benefit of her son.
After the Bates Trust was created and funded and after Ms. Bates had depleted the
remainder of her assets, Ms. Bates applied for Medicaid benefits with her local
Department of Social Services (DSS). Response to motion for summary judgment [#40],
Exhibit 1-A (Bates Complaint), ¶ 10. On March 15, 2007, Ms. Bates’ application for
4

Medicaid benefits was denied. The DSS determined that the assets of the Bates Trust
were not exempt from consideration because of the terms of a loan provision in the
trust. Bates Complaint, ¶ 12.
The plaintiffs were retained to appeal that determination, and they filed an appeal
on March 29, 2007. On May 31, 2007, an administrative law judge issued a decision
reversing the determination of the DSS. Bates Complaint, ¶ 13.
The Colorado Department of Healthcare Policy and Financing filed written
exceptions to the decision of the administrative law judge. On September 4, 2007, the
Office of Appeals of the Colorado Department of Healthcare Policy and Financing
reversed the decision of the administrative law judge and entered a Final Agency
Decision. Bates Complaint, ¶ 14. That decision held that, due to the terms of the loan
provision in the Bates Trust, Ms. Bates was not financially eligible for Medicaid. Bates
Complaint, ¶ 14; Response to motion for summary judgment [#40], Exhibit 1-B (Final
Agency Decision).
According to the Bates Complaint, after the Final Agency Decision was issued,
Ms. Bates, through her son and attorney-in-fact, directed the Davis Firm to seek judicial
review of the Final Agency Decision. Bates Complaint, ¶ 15. The Final Agency
Decision includes a description of a party’s right to file a motion for reconsideration of
the decision and a statement that a party may seek judicial review of the Final Agency
Decision by filing a judicial action in the “appropriate State District Court within thirty
(30) calendar days after this Final Agency Decision becomes effective.” Final Agency
Decision, p. 8. The Davis Firm assured Bates that an action seeking judicial review
would be filed and that no deadlines would be missed. Id.
On September 28, 2007, the Davis Firm filed a motion for reconsideration with
5

the Office of Appeals of the Colorado Department of Healthcare Policy and Financing.
The Davis Firm believed, albeit in error, that the filing of the motion for reconsideration
tolled the 30 day statute of limitations applicable to the commencement of an action for
judicial review of the Final Agency Decision. Response to motion for judgment on the
pleadings [#28], Exhibit 1 (Davis Affidavit), ¶ 17. The motion for reconsideration was
denied on October 15, 2007. The Davis Firm failed to file an action for judicial review
before the 30 day statute of limitations expired. Bates Complaint, ¶ 16.
On November 13, 2007, Ms. Bates, represented by a different lawyer, filed a
complaint in state district court seeking judicial review of the Final Agency Decision and
asserting a claim under 42 U.S.C. § 1983 concerning the administrative hearing
procedures that resulted in the Final Agency Decision. On January 17, 2008, the state
district judge assigned to that case entered an order dismissing the claim for judicial
review of the Final Agency Decision because the action for judicial review was not
commenced “within the applicable time limits . . . .” Motion for judgment on the
pleadings [#27], Exhibit C (Bates v. Henneberry, Case No. 07CV11002, District Court,
City and County of Denver, Colorado (Order, filed January 17, 2008)).
On June 2, 2008, after a trial to the court, the same state district judge dismissed
Ms. Bates’ § 1983 claim in an oral ruling from the bench. On July 13, 2009, the state
district judge entered a written order stating the basis for her June 2, 2008, ruling.
Response to motion for partial summary judgment [#40], Exhibit 1-D (Bates v.
Henneberry, Case No. 07CV11002, District Court, City and County of Denver,
Colorado (Order, filed July 13, 2009.))
In March, 2009, the Davis Firm became aware that Ms. Bates was dissatisfied
with the firm’s services and that she was considering filing a claim of legal malpractice
6

against the firm. In June, 2009, Ms. Bates filed a complaint in state court alleging, inter
alia, a claim of professional negligence against the Davis Firm. Response to motion for
summary judgment [#40], Exhibit 1-A (Bates Complaint). The defendants refused the
plaintiffs’ demands that the defendants provide a defense for the plaintiffs and that the
defendants indemnify the plaintiffs against the claims asserted in the Bates litigation.
B. POLICIES AND POLICY TERMS
In its complaint [#1-3], the Davis Firm alleges that it was covered by a
professional liability policy issued by WFIC for the policy period April 1, 2008, to April 1,
2009. Complaint, ¶ 8. It is undisputed that the Davis Firm was insured continually
under successive WFIC lawyer’s professional liability policies from April, 2007, through
April 1, 2010. Id., ¶¶ 9 - 10. In the Final Pretrial Order [#48], the plaintiffs state that
they were covered under professional liability policies issued by WFIC since April 1,
2007. Final Pretrial Order, p. 2
Each of the WFIC policies is a claims made and reported policy. The policy that
covered the period from April 1, 2008, to April 2, 2009 provides:
SECTION I - COVERAGE
The Company will pay on behalf of the Insured all sums which the Insured
shall become legally obligated to pay as Damages for Claims first made
against the Insured during the Policy Period and first reported to the
Company during the Policy Period or within thirty (30) days thereafter,
arising out of any act, error, omission or Personal Injury in the rendering of
or failure to render Professional Services by an Insured or any entity or
individual for whom the Named Insured is legally liable; provided always
that such act, error, omission or Personal Injury happens:
A. during the Policy Period; or
B. prior to the Policy Period provided that:
1. such act, error, omission or Personal Injury happened on or after
the Retroactive Date as indicated on the Declarations Page of this
7

policy;
and
2. at the inception of this policy the Insured had no reasonable
basis to believe that any Insured had breached a professional duty
and no reasonable basis to believe an act, error, omission or
Personal Injury might be expected to result in such Claim or Suit.
Response to motion for summary judgment [#40], Exhibit 1-H (2008 - 2009 Policy), p. 3
of 12. The 2008 - 2009 Policy defines a “Claim” as:
SECTION VIII - DEFINITIONS
[A] demand for money, [or] the filing of Suit… naming the Insured and
alleging an act, error, omission or Personal Injury resulting from the
rendering of or failure to render Professional Services. Claim also means
knowledge by an Insured of any event or circumstance which could
reasonably be expected to result in or lead to a Claim being asserted
against an Insured, provided that the Insured gives the Company written
notice of such event or circumstance prior to the termination date of the
Policy Period or within (30) days thereafter, or during the Extended
Reporting Period, if applicable.
2008 - 2009 Policy, p. 7 of 12.
IV. ANALYSIS
A. STANDARDS FOR CONSTRUCTION OF THE INSURANCE POLICIES
This case hinges on an interpretation of the WFIC policy. In this diversity action,
Colorado law provides the legal principles by which the Policy must be interpreted.
Leprino Foods Co. v. Factory Mut. Ins. Co., 453 F.3d 1281, 1287 (10th Cir. 2006).
Interpretation of an insurance contract is a question of law to be resolved by the court.
Colorado Intergovernmental Risk Sharing Agency v. Northfield Insurance Co., 207
P.3d 839, 841 (Colo. App. 2008).
Under Colorado law insurance contracts are to be construed in accordance with
the general laws of contracts. Federal Deposit Ins. Corp. v. American Casualty Co.,

8

843 P.2d 1285, 1289 (Colo. 1992); Marez v. Dairyland Ins. Co., 638 P.2d 286, 288 289 (Colo. 1981), overruled on otr. grounds, Friedland v. Travelers Indem. Co., 105
P.3d 639, 642-643 (Colo. 2005). Traditional rules of construction apply. Thus, not
surprisingly, an insurance contract must be interpreted according to the plain and
ordinary meaning of its language. Kellogg v. Metro. Life Ins. Co., 549 F.3d 818, 829
(10th Cir. 2008); Chacon v. American Family Mut. Ins. Co., 788 P.2d 748, 750 (Colo.
1990). When the language used in a contract is plain and its meaning is clear, the
agreement must be enforced as written. In re May, 756 P.2d 362, 368 (Colo. 1998);
Fire Ins. Exch. v. Rael by Rael, 895 P.2d 1139, 1142 (Colo. App. 1995). Courts
should be wary of rewriting contract provisions and should give the words contained in
the contract their plain and ordinary meaning, unless contrary intent is evidenced within
the contract itself. See, e.g., Lovell v. State Farm Mut. Auto. Ins. Co., 466 F.3d 893,
902 (10th Cir. 2006) (noting that courts should not rewrite insurance policy provisions
that are clear and unambiguous) (citations omitted); Cyprus Amax Materials Co. v.
Lexington Ins. Co., 74 P.3d 294, 299 (Colo. 2003) (courts should give the words
contained in an insurance policy their plain and ordinary meaning).
Courts may neither add provisions to extend coverage beyond that contracted
nor delete provisions to limit coverage. Cyprus Amax, 74 P.3d at 299. When
interpreting a policy's provisions, a court's construction "must be fair, natural, and
reasonable rather than strained and strictly technical." Massingill v. State Farm Mut.
Auto. Ins. Co., 176 P.3d 816, 825 (Colo. App. 2007) (citing Pub. Serv. Co. v. Wallis &
Cos., 986 P.2d 924, 939 (Colo. 1999)). A court's interpretation of an insurance contract
is a matter of law, subject to de novo review. Compass Ins. Co. v. City of Littleton ,

9

984 P.2d 606, 613 (Colo. 1999).
When an insurance company seeks to limit or exclude coverage under the terms
of an insurance policy, the insurer bears the burden or proving that a particular loss falls
within an exclusion in the contract. Colorado Intergovernmental Risk Sharing
Agency v. Northfield Ins. Co., 207 P.3d 839, 842 (Colo. App. 2008). If a limitation or
exclusion in an insurance contract is unambiguous, then that limitation or exclusion
must be enforced. Id.
B. WHICH POLICY IS APPLICABLE?
In the briefing related to the plaintiffs’ motion for partial summary judgment, the
parties dispute which of the three WFIC policies issued to the Davis Firm is applicable in
this case. This issue can and must be resolved by interpreting the language of the
policies. I find and conclude that the 2008 - 2009 Policy is the policy that must be
construed to determine whether or not a WFIC policy includes coverage of the Bates
claim against the Davis Firm.
The professional liability insurance policies in question are claims made and
reported policies. The first policy covered the period from April 1, 2007, to April 1, 2008.
Response to motion for summary judgment [#40], Exhibit 1-I (2007 - 2008 Policy),
CM/ECF p. 1 (Declarations Page). The second policy covered the period from April 1,
2008, to April 1, 2009. 2008 - 2009 Policy, CM/ECF p. 1 (Declarations Page). Like the
2008 - 2009 policy, the 2007 - 2008 Policy covers claims “first made against the Insured
during the Policy Period and first reported to the Company during the Policy Period or
within thirty (30) days thereafter . . . .” 2007 - 2008 Policy, p. 3 of 12.
It is undisputed that the Bates claim against the plaintiffs was reported first to
WFIC on March 29, 2009. Therefore, coverage under the 2008 - 2009 Policy, which
10

was effective from April 1, 2008, to April 1, 2009, is at issue here. The Bates claim was
not first reported to WFIC during the coverage period of the 2007 - 2008 Policy.
Therefore, the 2007 - 2008 Policy does not provide coverage for the Bates claim.
The Davis Firm argues that the 2008 - 2009 Policy was a renewal of the 2007 2008 Policy and that, therefore, the 2007 - 2008 Policy should be seen also as providing
coverage for the Bates claim. In essence, the Davis Firm argues that the window of
coverage provided by each policy should expand as long as each annual policy is
renewed continuously. However, this theory is contrary to the clear language of the
policies, which language provides that each policy covers claims first made against the
insured and reported to the insurance company during the policy period or within 30
days thereafter. 2007 - 2008 Policy, p. 3 of 12; 2008 - 2009 Policy, p. 3 of 12.
The language of the policies is plain and its meaning is clear. Thus. the policies
must be enforced as written. The 2008 - 2009 Policy is the policy that must be analyzed
to determine whether a WFIC policy includes coverage of the Bates claim.
C. DUTY TO DEFEND
In a dispute concerning an insurer’s duty to defend against a claim
asserted against its insured in a civil suit, Colorado applies the “complaint rule.” This
rule provides that the allegations of the relevant complaint against the insured, together
with the language of the relevant insurance policy, provide the bases for evaluating
whether an insurer has a duty to defend. Lopez v. American Family Mut. Ins. Co.,
148 P.2d 438, 439 (Colo. App. 2006); Cotter v. American Empire Sur. Lines, Ins. Co.,
90 P.3d 814 (Colo. 2004).
We have long held that to determine whether a duty to defend exists,
courts must look no further than the four corners of the underlying
complaint (the “four corners” or “complaint” rule). See Hecla Mining Co.
11

v. N.H. Ins. Co., 811 P.2d 1083, 1089 (Colo.1991). An insurer is not
excused from this duty “unless there is no factual or legal basis on which
the insurer might eventually be held liable to indemnify the insured.” Id. at
1090. Hence, if the alleged facts even potentially trigger coverage under
the policy, the insurer is bound to provide a defense. Constitution Assoc.
[v. N.H. Ins. Co., 930 P.2d [556, 563 (Colo 1986)]; Hecla, 811 P.2d at
1089.
Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 299 (Colo. 2003).
An insurer seeking to avoid its duty to defend an insured bears a heavy
burden. An insurer's duty to defend arises when the underlying complaint
against the [insured] alleges any facts that might fall within the coverage of
the policy. The actual liability of the insured to the claimant is not the
criterion which places upon the insurance company the obligation to
defend. Rather, the obligation to defend arises from allegations in the
complaint, which if sustained, would impose a liability covered by the
policy. [W]here the insurer's duty to defend is not apparent from the
pleadings in the case against the insured, but the allegations do state a
claim which is potentially or arguably within the policy coverage, or there is
some doubt as to whether a theory of recovery within the policy coverage
has been pleaded, the insurer must accept the defense of the claim.
* * * *
The insurer has a duty to defend unless the insurer can establish that the
allegations in the complaint are solely and entirely within the exclusions in
the insurance policy. An insurer is not excused from its duty to defend
unless there is no factual or legal basis on which the insurer might
eventually be held liable to indemnify the insured.
Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083, 1089 - 1090 (Colo.
1991) (internal quotations, citations, and footnote omitted).
The defendants argue that they were not obligated to provide a defense for the
Davis Firm in the Bates litigation because the allegations in the Bates Complaint show
that, at the inception of the 2008 - 2009 Policy (April 1, 2008), the Davis Firm had a
reasonable basis to believe that it had breached two professional duties to Ms. Bates
and that the breaches might result in a claim against the Davis Firm. The defendants
rely on the provision of the 2008 - 2009 Policy, which provides coverage for a claim only
if
12

at the inception of this policy the Insured had no reasonable basis to
believe that any Insured had breached a professional duty and no
reasonable basis to believe an act, error, omission or Personal Injury
might be expected to result in such Claim or Suit.
2008 - 2009 Policy, p. 3 of 12. “Such prior-knowledge conditions are common in
claims-made policies because they ensure that only risks of unknown loss are
potentially [insured], and prevent an insured from obtaining coverage for the risk of a
known loss, which would be unfair to the insurer.” Cohen-Esrey Real Estate
Services, Inc. v. Twin City Fire Insurance Co., 636 F.3d 1300, 1303 (10th Cir. 2011)
(internal quotation and citation omitted).
The parties agree that a subjective-objective test is applicable to a determination
of whether the Davis Firm had a reasonable basis to believe that it had breached a
professional duty and a reasonable basis to believe that the breach might be expected
to result in a claim or suit. First, the court must determine what facts were known
subjectively by the insured. In this case, the key facts concern knowledge of a breach
of a professional duty. Second, the court must determine objectively whether a
reasonable person with knowledge of those facts would conclude that the Davis Firm
had breached a professional duty and that the breach might be expected to result in a
claim or suit. This subjective-objective approach has been used by courts interpreting
policy language similar to that at issue in this case. See, e.g., Selko v. Home
Insurance Co., 139 F.3d 146, 150 - 152 (3rd Cir. 1998); Westport Ins. Corp. v. Lilley,
292 F.Supp.2d 165, 171 (D. Me. 2003).3
Applying Colorado law, my analysis of the duty to defend question must be

3

In an unpublished opinion, the United States Court of Appeals for the Tenth Circuit applied a
similar standard when interpreting the effect of exclusionary language in an insurance policy. Rivelli v.
Twin City Fire Ins. Co., 359 Fed. Appx. 1, 5 - 6 (10th Cir. 2009).

13

limited to the terms of the 2008 - 2009 Policy and the allegations in the Bates
Complaint. If the allegations in the Bates Complaint even potentially trigger coverage
under the policy, then the defendants were bound to provide a defense to the Davis
Firm. On the other hand, if the allegations in the Bates Complaint are solely and
entirely within the exclusion on which the defendants rely, then the defendants had no
duty to defend. More specifically, if the allegations in the Bates Complaint concern only
facts that show that prior to April 1, 2008, the Davis Firm had a reasonable basis to
believe it had breached a professional duty to Ms. Bates and that the breach might
result in a claim or suit, then the allegations in the Bates Complaint are solely and
entirely within the exclusion on which the defendants rely.
In the Bates Complaint, Ms. Bates alleged that the Davis Firm breached two
professional duties owed to Ms. Bates. First, Ms. Bates alleges that the Davis Firm was
negligent because it failed to use appropriate skill and care in preparing the Bates Trust.
Bates Complaint, ¶¶ 20, 21, 24, 28. Second, Ms. Bates alleges that the Davis Firm was
negligent when it failed to file a timely complaint seeking judicial review of the Final
Agency Decision. Bates Complaint, ¶ 16. I consider each of these alleged breaches in
turn.
Addressing the first alleged breach of duty, the failure to draft the trust properly,
Ms. Bates detailed in her complaint the administrative decisions made concerning the
trust, including the date of the Final Agency Decision, September 4, 2007. Bates
Complaint, ¶¶ 12 - 14. A copy of the Final Agency Decision was attached to the Bates
Complaint as Exhibit 3. Bates Complaint, ¶ 14. The Final Agency Decision held, in
effect, that the Bates Trust had not been drafted in a way that accomplished Ms. Bates’
primary goal, which was to achieve eligibility for Medicaid. Drafting the trust to
14

accomplish its intended purpose was a duty entrusted expressly to the Davis Firm by
Ms. Bates. Based on the facts alleged in the Bates Complaint, the Davis Firm knew on
September 4, 2007, that the state agency with authority to make the determination had
concluded that the Davis Firm had drafted the Bates Trust in a fashion that failed to
accomplish the primary purpose of its client, Ms. Bates. Knowledge of the Final Agency
Decision is a reasonable basis for the Davis Firm to believe that it had breached a
professional duty to Ms. Bates in drafting the Bates Trust.
Knowing that it had breached a professional duty to Ms. Bates, the Davis Firm
also had a reasonable basis to believe that its breach of duty might be expected to
result in a claim or suit against the Davis Firm. A legal malpractice claim founded in
negligence arises when a lawyer breaches a duty of care imposed by the attorney-client
relationship. General Steel Domestic Sales, LLC v. Hogan & Hartson, LLP, 230
P.3d 1275, 1284 (Colo. App. 2010). “A breach of a professional duty and a basis for a
claim are . . . ‘two peas in a pod.’ If the former occurs, experience teaches that the latter
can be expected to follow.” Coregis Ins. Co. v. Baratta & Fenerty, Ltd., 264 F.3d 302,
307 (3rd Cir. 2001).
The Davis Firm argues that, even if it knew of this breach of duty in September of
2007, it did not know that the breach might be expected to result in a claim. The Davis
Firm contends that Ms. Bates could have avoided any harm caused by the failure of the
trust by “dumping the assets of the Bates Trust,” as the firm advised Ms. Bates to do.
Response [#28], p. 14. Absent a harm caused by the breach of duty, the Davis Firm
argues, Ms. Bates could not assert a claim against the Davis Firm. Assuming it is true
that Ms. Bates could have dumped the assets of the trust and achieved her goal of
becoming eligible for Medicaid, a dumping of the trust assets does not avoid all
15

foreseeable harms caused by the failure of the trust. For example, Ms. Bates could
have sought to recover the attorney fees she paid to the Davis Firm to prepare the trust
based on her contention that the trust was not drafted properly.
The Davis Firm argues also that it was not aware that its breach of duty might be
expected to result in a claim against the firm until Ms. Bates indicated that she was
dissatisfied with the firm’s representation and intended to assert a claim against the
firm. This did not happen, the Davis Firm says, until May, 2009, when Ms. Bates made
her first claim for damages against the Davis Firm. Motion for partial summary
judgment [#39], p. 15. however, under the terms of the policy, an actual claim for
damages by a client was not required for the firm to have the requisite knowledge of a
potential claim. Rather, the policy provides that a claim is not covered if, on the
inception date of the policy, the Davis Firm knew of a breach of duty and had a
reasonable basis to believe that the breach of duty “might be expected to result in” a
claim or suit. 2008 - 2009 Policy, p. 3 of 12. The language “might be expected to
result” does not require that a claim actually be asserted against the firm before the firm
has the knowledge described in the policy.
The allegations in the Bates Complaint indicate that no later than September 4,
2007, the Davis Firm had knowledge that created a reasonable basis to believe that it
had breached a professional duty to Ms. Bates in drafting the Bates Trust and that the
breach might be expected to result in a claim against the Davis Firm. The 2008 - 2009
Policy excludes coverage for breaches of duty and possible claims known to the insured
prior to the inception date of the policy on April 1, 2008. Considering the terms of the
2008 - 2009 Policy and the Bates Complaint, I conclude as a matter of law that the
claim concerning the drafting of the Bates Trust did not trigger a duty to defend under
16

the 2008 - 2009 Policy.
Addressing the second breach of professional duty, the failure to file timely a
complaint for judicial review, Ms. Bates alleged in her complaint:
A complaint seeking judicial review of the Final Agency Action was
not filed in a timely manner by Davis and/or Davis & Associates, P.C. See
Exhibit “4", attached hereto and incorporated herein by reference.
Bates Complaint, ¶ 16.4 The Final Agency Decision, Exhibit 3 to the Bates Complaint,
includes a specific description of the deadline for filing an action for judicial review of the
Final Agency Decision.
This Final Agency Decision shall be effective and binding upon all parties
on the third day after the date set forth in the certificate of mailing
[September 4, 2007], even if the third day falls on a Saturday, Sunday, or
a legal holiday. Section 8.057.11.B. The appellant may commence an
action for judicial review of the Final Agency Decision, pursuant to the
provisions of §24-4-106(4), C.R.S. Any judicial action must be filed with
the appropriate State District Court within thirty (30) calendar days after
this Final Agency Decision becomes effective.
Final Agency Decision, p. 8.
Given the facts alleged in the Bates Complaint, including the relevant provisions
of the Final Agency Decision, I conclude that the allegations in the Bates Complaint
concerning the untimely filing of the action for judicial review would not create a liability
covered by the policy. Rather, the allegations establish that such a claim falls outside
the coverage of the 2008 - 2009 Policy. The Final Agency Decision, which is part of the
Bates Complaint, indicates clearly that an action for judicial review must be filed within
30 days of September 7, 2007.
The statute cited in the Final Agency Decision, §24-4-106, C.R.S. (2007),

4

Paragraph 16 of the Bates Complaint refers to “Exhibit ‘4',” but does not specify what is
contained in Exhibit 4. Nothing in the record of the present case indicates what was contained in Exhibit
4. Thus, I do not consider Exhibit 4 in my analysis.

17

prescribes the thirty day deadline. Subsection (4) of the statute provides that “any
person adversely affected or aggrieved by any agency action may commence an action
for judicial review in the district court within thirty days after such agency action
becomes effective . . . . “ Section 24-4-106(4), C.R.S. (2007). Subsection (2) of the
statute provides:
(2) Final agency action under this or any other law shall be subject to
judicial review as provided in this section, whether or not an application for
reconsideration has been filed, unless the filing of an application for
reconsideration is required by the statutory provisions governing the
specific agency. In the event specific provisions for rehearing as a basis
for judicial review as applied to any particular agency are in effect on or
after July 1, 1969, then such provisions shall govern the rehearing and
appeal procedure, the provisions of this article to the contrary
notwithstanding.
Section 24-4-106(2), C.R.S. (2007). Under subsection (2), if the “statutory provisions
governing a specific agency” require an application for reconsideration, then the timing
and procedure for seeking judicial review may differ from that stated in § 24-4-106 (2)
and (4). However, nothing in the Bates Complaint or in the statute indicates that an
application for reconsideration was required in response to the Final Agency Decision,
or that other provisions of law suspended in any way the expiration of the thirty day time
limit.
The facts alleged in the Bates Complaint indicate that on September 7, 2007, the
Davis Firm learned of the thirty day time limit for filing an action for judicial review. The
Bates Complaint indicates that this deadline expired on October 7, 2007, without the
filing of an action for judicial review by the Davis Firm. The Bates Complaint does not
indicate specifically when the Davis Firm learned that this deadline had expired without
the filing of an action for judicial review. However, given the specific factual allegations
in the Bates Complaint, including the Final Agency Decision and the content of §24-418

106(2), (4), C.R.S., which is referenced in the Final Agency Decision , it was reasonable
for the defendants to infer that the Davis Firm knew that the deadline had expired
sometime before the inception date of the 2008 - 2009 Policy, which was April 1, 2008.
By the time the 2008 - 2009 Policy became effective on April 1, 2008, more than 200
days had passed since the Davis Firm had learned of the thirty day deadline to file an
action for judicial review. The Davis Firm’s knowledge of this breach of duty, and the
resulting reasonable belief that a claim might be expected to result from the breach,
prior to April 1, 2008, demonstrates that the 2008 - 2009 Policy does not provide
coverage for this claim.
The allegations in the Bates Complaint concerning the failure of the Davis Firm to
draft the trust properly and the failure of the Davis Firm to file a timely action for judicial
review are solely and entirely within the exclusions in the 2008 - 2009 Policy. Looking
solely to the terms of that policy and the allegations in the Bates Complaint, there is no
factual or legal basis on which the insurer might eventually be held liable to indemnify
the insured on the claims asserted in the Bates Complaint. The defendants had no duty
to defend the Davis Firm against the claims asserted in the Bates Complaint.
D. DUTY TO INDEMNIFY
The duty of an insurance company to indemnify concerns the duty of the
company to satisfy a judgment against an insured, if the judgment is based on a claim
covered by the insurance policy. In its complaint, the Davis Firm alleges that the
defendants also have a duty to indemnify the firm for the claims of Ms. Bates against
the firm.
“Where there is no duty to defend, it follows that there can be no duty to
indemnify.” Constitution Assoc. v. New Hampshire Ins. Co., 930 P.2d 556, 563
19

(Colo. 1996). Here, the defendants had no duty to defend, and, thus, had no duty ipso
facto to indemnify.
Even if the defendants did have a duty to defend in this case, I conclude that the
undisputed facts in the record demonstrate that the defendants have no duty to
indemnify the Davis Firm for any liability established on the claims asserted in the Bates
Complaint. Notably, in determining a duty to indemnify, as opposed to a duty to defend,
the court may look beyond the terms of the relevant insurance policy and the civil
complaint brought against the insured. Cyprus Amax Minerals Co. v. Lexington Ins.
Co., 74 P.3d 294, 301 - 302 (Colo. 2003) (“extrinsic evidence may assist the trial court
in determining whether and to what extent actual liability, as represented by a verdict or
settlement, is covered by an existing policy.”).
In this case, the undisputed facts in the record demonstrate that prior to April 1,
2008, the Davis Firm had the knowledge and the reasonable basis to believe that it had
breached the two professional duties that were the bases of the claims of Ms. Bates
against the firm and that a claim or suit may be expected to result. With regard to the
drafting of the trust, it is undisputed that the Davis Firm learned of the Final Agency
Decision on September 4, 2007. As discussed previously, knowledge of that decision
gave the Davis Firm a reasonable basis to believe that it had breached a professional
duty to Ms. Bates by failing to draft the Bates Trust in a way that accomplished her
primary goal and that as a result a claim or suit might be expected to result.
With regard to the firm’s failure to file an action for judicial review in a timely
fashion, it is undisputed that on January 17, 2008, the state district judge assigned to
the action for judicial review entered an order dismissing the claim for judicial review of
the Final Agency Decision because the action for judicial review was not commenced
20

“within the applicable time limits . . . .” Motion for judgment on the pleadings [#27],
Exhibit C (Bates v. Henneberry, Case No. 07CV11002, District Court, City and County
of Denver, Colorado (Order, filed January 17, 2008)). Although the Davis Firm did not
represent Ms. Bates in the action for judicial review, it is undisputed that the Davis Firm
assured Ms. Bates that the firm would file a timely complaint seeking judicial review. It
is undisputed also that the Davis Firm referred Ms. Bates to another lawyer for
assistance in filing the action for judicial review and that this referral occurred after the
thirty day deadline had expired. Response [#28], Exhibit 1, ¶¶ 23 - 24. It is undisputed
also that the Davis Firm was aware of the progress of that case. The January 17, 2008,
order of the Denver District Court gave the Davis Firm the knowledge and the
reasonable basis to believe that it had breached a professional duty to Ms. Bates by
failing to file an action for judicial review in a timely fashion and that, therefore, a claim
or suit might be expected to result.
On June 2, 2008, the Denver District Court issued an order dismissing the claim
under 42 U.S.C. § 1983, which claim was asserted in the same case as the action for
judicial review. The Davis Firm argues that it was not until June 2, 2008, that it could
possibly have had any basis to believe that a claim for legal malpractice could result
from its failure to file a timely complaint for judicial review. I disagree. The January 17,
2008, order of the Denver District Court clearly and explicitly dismisses the claim for
judicial review because the complaint was not timely filed. Knowledge of that order
provides a reasonable basis to believe that the Davis Firm had breached a professional
duty and that a claim might result.
E. RESOLUTION OF THE PLAINTIFFS’ CLAIMS
Given my conclusion that the defendants had neither a duty to defend nor a duty
21

to indemnify the Davis Firm against the claims asserted in the Bates Complaint, the
defendants are entitled to summary judgment on each of the plaintiffs’ claims in this
case. The plaintiffs’ breach of contract and bad faith breach of insurance contract
claims both are based on the allegation that the defendants breached duties held by the
defendants under the terms of the insurance policy. Viewing the undisputed facts in the
record in the light most favorable to the plaintiffs, I conclude as a matter of law that the
2008 - 2009 Policy is the only policy that potentially covers the claims asserted in the
Bates Complaint and that under the terms of that policy, the defendants had no duty to
defend or indemnify the Davis Firm against those claims. Absent a breach by the
defendants of a duty created under the policy, there is no basis for the plaintiffs’ breach
of contract claim or bad faith breach of insurance contract claim. The defendants are
entitled to summary judgment on both of these claims.
The plaintiffs’ claim under §§10-3-1115 and 10-3-1116, C.R.S. is based on
allegations that the defendants “unreasonably delayed or denied insurance policy
benefits” to the plaintiffs and that the defendants refused “to make full and adequate
payment of insurance benefits to Plaintiffs.” Complaint [#1-3], ¶¶ 38 - 39. Viewing the
undisputed facts in the record in the light most favorable to the plaintiffs, I conclude that
the defendants had no duty to defend or indemnify the plaintiffs against the claims
asserted in the Bates Complaint. Absent such duties, there is no basis to contend that
the defendants delayed or denied benefits or failed to make full and adequate payment
of benefits. Thus, the defendants are entitled to summary judgment on the plaintiffs
claim under §§10-3-1115 and 10-3-1116, C.R.S.
V. CONCLUSION AND ORDERS
Viewing the undisputed facts in the record in the light most favorable to the
22

plaintiffs, I conclude that the defendants are entitled to summary judgment on each of
the plaintiffs’ claims, including the plaintiffs’ breach of contract claim, bad faith breach of
insurance contract claim, and claim under §§10-3-1115 and 10-3-1116, C.R.S.
THEREFORE, IT IS ORDERED as follows:
1. That under FED. R. CIV. P. 12(d), the Westchester Fire Insurance
Company’s and the Plus Companies, Inc.’s Motion for Judgment on the Pleadings
[#27] filed April 12, 2011, is CONVERTED to a motion for summary judgment;
2. That the Westchester Fire Insurance Company’s and the Plus
Companies, Inc.’s Motion for Judgment on the Pleadings [#27] filed April 12, 2011,
viewed as a motion for summary judgment, is GRANTED;
3. That the Plaintiff’s Motion for Partial Summary Judgment and
Memorandum Brief in Support [#39] filed August 23, 2011, is DENIED;
4. That the plaintiffs’ Complaint and Jury Demand [#1-3] is DISMISSED with
prejudice;
5. That judgment SHALL ENTER in favor of the defendants, Westchester Fire
Insurance Company and the Plus Companies, Inc., against the plaintiffs, Davis &
Associates P.C. n/k/a Davis Shilken, P.C., and Keith L. Davis, as to all claims and
causes of action asserted herein;
6. That the Trial Preparation Conference, currently scheduled for January 27,
2012, as well as the trial, currently scheduled to commence on Monday, February 6,
2012, both are VACATED;
7. That the Defendants’ Motion To Continue Trial Date [#56] is DENIED as
moot; and
8. That the defendants are AWARDED their costs, to be taxed by the Clerk of
23

the Court in the time and manner prescribed by Fed. R. Civ. P. 54(d)(1) and
D.C.COLO.LCivR 54.1.
Dated January 24, 2012, at Denver, Colorado.
BY THE COURT:

24