Phoenix Insurance Company, The et al v. Trinity Universal Insurance Company of Kansas et al

Filing 173

ORDER denying 81 Motion for Leave to Designate Non-Parties at Fault. By Magistrate Judge Kristen L. Mix on 8/26/2013.(klyon, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 12-cv-01553-REB-KLM
THE PHOENIX INSURANCE COMPANY, a Connecticut insurance company; and
ST. PAUL SURPLUS LINES INSURANCE COMPANY, a Minnesota insurance
company,
Plaintiffs,
v.
TRINITY UNIVERSAL INSURANCE COMPANY OF KANSAS, a Kansas insurance
company;
TRINITY UNIVERSAL INSURANCE OF KANSAS, a Kansas insurance company;
TRINITY UNIVERSAL INSURANCE COMPANY, a Texas insurance company;
ZURICH AMERICAN INSURANCE COMPANY, a New York insurance company;
STATE FARM INSURANCE COMPANY, an Illinois insurance company; and
MOUNTAIN STATES MUTUAL CASUALTY COMPANY, a New Mexico insurance
company,
Defendants.
_____________________________________________________________________
ORDER
_____________________________________________________________________
ENTERED BY MAGISTRATE JUDGE KRISTEN L. MIX
This matter is before the Court on Defendants Trinity Universal Insurance Company
of Kansas, Trinity Universal Insurance of Kansas, and Trinity Universal Insurance
Company’s (the “Trinity Defendants”) Motion for Leave to Designate Non-Parties at
Fault [Docket No. 81; Filed April 1, 2013] (the “Motion”). On April 26, 2013, Plaintiffs filed
a Response [#95]. On May 9, 2013, the Trinity Defendants filed a Reply [#100]. The Court
has reviewed the Motion, the Response, the Reply, the entire docket, and the applicable
law, and is sufficiently advised in the premises. For the reasons stated below, the Motion
[#81] is DENIED.
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I. Factual Background
This case is brought by a general contractor’s insurer against the insurers of various
subcontractors seeking contribution for the defense costs associated with a lawsuit brought
against the general contractor. More specifically, Okland Construction Company, Inc.
(“Okland”) served as the general contractor for the construction of the Rivergate Loft
Condominiums (the “Project”). See Amended Complaint [#11] at ¶¶ 21-22. Plaintiffs
Phoenix Insurance Company and St. Paul Surplus Lines Insurance Company (collectively,
“Travelers” or “Plaintiffs”) insured Okland as the general contractor for the Project (the
“Travelers Policy”). Response [#95] at 2. In constructing the Project, Okland contracted
with several subcontractors, including Beaty Construction Company (“Beaty”). Amended
Complaint [#11] at 4-5; see Motion [#81] at 2. Beaty was insured by the Trinity Defendants.
Response [#95] at 2.
On January 13, 2010, Rivergate Loft Condominium Owners Association (“RLCOA”)
filed a lawsuit against Okland and others (the “Underlying Action”), alleging construction
defects and property damage in connection with the Project. See Amended Complaint
[#11] 4; Response [#95] at 3. Plaintiffs allege that “prior to the start of trial in the Underlying
Action,” they settled with the RLCOA. Amended Complaint [#11] at ¶ 27.
On June 15, 2011, Plaintiffs commenced the present action, seeking to recover
amounts that they allege various subcontractors’ insurers were obligated to contribute
toward Okland’s defense. See generally Compl. [#1]. On July 31, 2011, Plaintiffs filed an
Amended Complaint [#11], stating three claims for relief against all Defendants. First,
pursuant to their right of equitable subrogation, Plaintiffs assert a claim for reimbursement
of fees and costs incurred in defending Okland in the Underlying Action. See Amended
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Complaint [#11] at 7-8. Second, pursuant to their rights of contribution and equitable
contribution, Plaintiffs assert a claim to recover various subcontractors’ insurers’
proportionate shares of fees and costs incurred in defending Okland in the Underlying
Action. Id. at 8-9. Third, Plaintiffs assert a claim for declaratory relief stating that the
subcontractors’ insurance policies provided for Okland’s defense on a primary basis and
the Travelers Policy provided for Okland’s defense on an excess basis. Id. at 9-10.
Through the Motion, the Trinity Defendants ask the Court to extend the deadline for
designation of nonparties at fault so they may name additional subcontractors and their
insurers as nonparties at fault. See generally Motion [#81]; Designation of Nonparties [#811]. In support of the Motion, the Trinity Defendants rely on C.R.S. § 13-21-111.5(3)(b), see
Motion [#81] at 2, which allows the Court to consider the negligence or fault of nonparties
when assessing a defendant’s liability. Defendants acknowledge that they failed to
designate nonparties at fault within the statutorily-prescribed ninety-day period, see Motion
[#81] at 2-3, but argue that the Court should allow them a longer period of time in which
to designate nonparties at fault because not all parties had responded to Plaintiffs’
Amended Complaint [#11] when the period ended. Id. The Trinity Defendants further
argue that they will suffer prejudice if the Motion is not granted. See id. at 3.
Plaintiffs respond with a number of arguments in opposition to the Motion. First,
Plaintiffs argue that nonparties at fault cannot be designated in the present action because
the present action concerns only claims based in contract. Id. at 4-8. Second, Plaintiffs
argue that the Trinity Defendants do not satisfy any of the factors that courts consider when
determining whether to extend the ninety-day period. Id. at 8-11. Third, Plaintiffs argue that
the Trinity Defendants failed to adequately state the basis of each proposed nonparty’s
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fault. Id. at 11. Fourth, Plaintiffs argue that the Trinity Defendants will suffer no prejudice
if the Court denies the Motion. Id. at 12-14. Finally, Plaintiffs argue that joining the
subcontractors and their insurers as defendants is preferable to designating them as
nonparties at fault. Id. at 14-15.
In their Reply, the Trinity Defendants argue that they should be allowed to designate
nonparties at fault because recent case law suggests that insurers may only be liable for
Plaintiffs’ alleged costs and damages on a pro rata basis. Reply [#100] at 2-3. Therefore,
the Trinity Defendant argue, the designation of nonparties is crucial to ensuring that the
named Defendants and any other party who may be at fault are treated equally. Id. The
Trinity Defendants further argue that they were delayed in designating nonparties at fault
because they needed time to investigate and review documents. Id. at 5. Finally, the
Trinity Defendants revisit arguments advanced in their Motion and conclude by stating that
they will be prejudiced if the Motion is not granted. Id. at 6-8.
II. Analysis
This Court, sitting in diversity, is bound by Colorado statutes when deciding
questions of substantive law. See Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). In
determining a defendant’s liability, Colorado’s Pro-Rata Liability Statute, C.R.S. § 13-21111.5, allows the Court to consider the negligence or fault of nonparties. Specifically, a
defendant may give written notice designating nonparties believed to be wholly or partially
at fault for the injury at issue. For a designation of a nonparty to be proper, the moving
party must give notice of the designation within ninety days of the commencement of the
action, unless the Court considers a longer period necessary. C.R.S. § 13-21-111.5(3)(b).
The notice must set forth the “nonparty's name and last-known address, or the best
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identification of such nonparty which is possible under the circumstances, together with a
brief statement of the basis for believing such nonparty to be at fault.” C.R.S. § 13-21111.5(3)(b).
Section 13-21-111.5 was passed by the Colorado General Assembly in 1986 as a
part of its tort reform package. See Robert E. Benson, Application of the Pro Rata Liability,
Comparative Negligence and Contribution Statutes, 23 Colo. Law. 1717, 171 7 (1994). The
statutory change that resulted in § 13-21-111.5(1) “was intended to cure the perceived
inequity under the common law concept of joint and several liability whereby wrongdoers
could be held fully responsible for a plaintiff's entire loss, despite the fact that another
wrongdoer, who was not held accountable, contributed to the result.” Barton v. Adams
Rental, Inc., 938 P.2d 532, 535 (Colo. 1997).

Colorado courts have held that the

comparative negligence statute is applicable to pecuniary losses as well as to injuries to
person or property. See Robinson v. Poudre Valley Fed. Credit Union, 654 P.2d 861, 863
(Colo. App. 1982); Darnell Photographs Inc. v. Great American Ins., 519 P.2d 1225, 1226
(Colo. App. 1974).
Because the statute was designed to apply to tort claims, courts have held that the
statute is inapplicable to contract claims. See Trustees of Colorado Laborers’ Health &
Welfare Trust Fund v. American Benefit Plan Adm’rs, Inc., No. 04-cv-02630-EWN-OES,
2005 WL 1661079, at *2 (D. Colo. July 14, 2005) (striking designation of nonparties and
concluding “that the comparative fault statute does not apply to claims that are premised
upon contract”); Core-Mark Midcontinent, Inc. v. Conitrol Corp., 300 P.3d 963, 976 (Colo.
App. 2012) (holding that Section 13-21-111.5 does not apply to breach of contract claims).
However, “[a]lthough C.R.S. § 13-21-111.5 appears to apply only to tort claims, the Tenth
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Circuit has recognized that certain claims, although nominally designated as contract
claims, nevertheless turn on the application of tort-like duties, thereby warranting
application of C.R.S. § 13-21-111.5.” Sterling Const. Mgmt., LLC v. Steadfast Ins. Co., No.
09-cv-02224-MSK-MJW, 2011 WL 3903074, at *6 (D. Colo. Sept. 06, 2011) (citing FDIC
v. Clark, 978 F.2d 1541, 1552 (10th Cir.1992)). In FDIC v. Clark, the plaintiff brought
claims of “professional negligence and/or breach of and implied warranty of professional
capacity and ability” against two lawyers, 978 F.2d at 1543, arguing that the lawyers
engaged in professional malpractice. 978 F.2d at 1551. When the trial court proposed
instructing the jury in accordance with C.R.S. § 13-21-11.5, the plaintiff objected, arguing
that “its claim was one for breach of implied warranty . . . and thus was a breach of contract
claim not subject to Colorado's proportionate liability statute.” Id. The trial court noted that
“the negligence and contract claims . . . should be merged into one hybrid ‘tort claim for
malpractice.’” Id. The Tenth Circuit agreed with that characterization, finding that “while
the question of whether the relationship exists requires a general contractual analysis, the
question of whether one exercised a duty arising out of that contract sounds in tort,” and
affirmed the trial court's use of the comparative fault instruction. Id.
Every contract in Colorado contains an implied duty of good faith and fair dealing.
Cary v. United of Omaha Life Ins. Co., 68 P.3d 462, 466 (Colo. 2003). In most contractual
relationships, a breach of this duty will only result in damages for breach of contract and
will not give rise to tort liability. Id. at 466; see Wheeler v. Reese, 835 P.2d 572, 578 (Colo.
App. 1992). However the Colorado Supreme Court has held that insurance contracts are
unlike ordinary bilateral contracts. Goodson v. American Standard Ins. Co. of Wisconsin,
89 P.3d 409, 414 (Colo. 2004) (citing Cary, 68 P.3d at 466; Huizar v. Allstate Ins. Co., 952
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P.2d 342, 344 (Colo. 1998)). In Goodson, the Colorado Supreme Court noted that the
motivation for entering into an insurance contract is different because “insureds enter into
insurance contracts for the financial security obtained by protecting themselves from
unforeseen calamities and for peace of mind, rather than to secure commercial advantage.”
Id. (citing Cary, 68 P.3d at 467; Farmers Group, Inc. v. Trimble, 691 P.2d 1138, 1141 (Colo.
1984)). The Court also noted the disparity of bargaining power between the insurer and
the insured, explaining that “because the insured cannot obtain materially different
coverage elsewhere, insurance policies are generally not the result of bargaining.” Id.
(citing Huizar, 952 P.2d at 344). For these reasons and due to the “special nature of the
insurance contract and the relationship which exists between the insurer and the insured,”
an insurer's breach of the duty of good faith and fair dealing gives rise to a separate cause
of action arising in tort. Cary, 68 P.3d at 466 (citing Trimble, 691 P.2d at 1141).
The basis for tort liability for a bad faith claim is the insurer's conduct in
unreasonably refusing to pay a claim to, and/or failing to act in good faith toward, its
insured. Goodson, 89 P.3d at 414. Here, there is no allegation of bad faith on the part of
any party. As noted above, Plaintiffs’ Amended Complaint states three claims for relief:
equitable subordination, equitable contribution, and declaratory relief regarding the relative
primacy of the insurance policies. See Amended Complaint [#11] at 7-10. In addition, the
Trinity Defendants’ Designation of Nonparties does not allege that any of the proposed
nonparties acted in bad faith. See generally Designation of Nonparties [#81-1]. As a result,
the Court finds that the allegations in the instant action are not the type of contract claims
that are “merely tort claims in a contractual wrapper,” Sterling Const., 2011 WL 3903074,
at *6, but rather regular contract claims to which Section 13-21-111.5 does not apply. See
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Trustees of Colorado Laborers’ Health & Welfare Trust Fund , 2005 WL 1661079, at *2
(striking designation of nonparties and concluding “that the comparative fault statute does
not apply to claims that are premised upon contract”); Core-Mark Midcontinent, Inc., 300
P.3d at 976 (holding that Section 13-21-111.5 does not apply to breach of contract claims).
This finding is fatal to the Trinity Defendants’ Motion. Accordingly, the Court will not
address Plaintiffs’ remaining arguments.
III. Conclusion
For the foregoing reasons,
IT IS HEREBY ORDERED that the Motion [#81] is DENIED.
Dated: August 26, 2013

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