The Home Loan Investment Company v. The St. Paul Mercury Insurance Company
ORDER DIRECTING SUPPLEMENTAL BRIEFING. By Judge Christine M. Arguello on 06/20/2014. (athom, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 12-cv-02308-CMA-CBS
THE HOME LOAN INVESTMENT COMPANY, a Colorado corporation,
THE ST. PAUL MERCURY INSURANCE COMPANY, d/b/a or
a/k/a TRAVELERS, a Connecticut corporation,
ORDER DIRECTING SUPPLEMENTAL BRIEFING
This matter is before the Court sua sponte. This Court requires further briefing
on two matters related to the parties’ proposed jury instructions. The parties shall both
file supplemental briefs on these matters no later than 5:00 pm on Sunday, June 22,
DEFENDANT’S REASONABLENESS INSTRUCTION
Defendant offers an instruction suggesting that “[a]n insurance company’s
position is not unreasonable when it is fairly debatable.” Plaintiff disputes that this
instruction is warranted, and offers no competing instruction.
The parties’ dispute here turns on a legal question: whether establishing that
the validity of an insurance claim is “fairly debatable” necessarily means that it was
reasonable to deny the claim or whether “fair debatability” is merely indicative of
reasonableness. The Court requires further briefing from the parties on this legal
question. In short, the current state of the law on this issue is confused and potentially
contradictory—and the parties do not address these contradictions in the current
briefing. The Court outlines its concerns with the present briefing as follows:
First, in briefing thus far presented to this Court, the parties cite no precedent
from the Colorado Supreme Court on the fair debatability question. Defendant
elliptically references Travelers Insurance Corporation v. Savio, 706 P.2d 1258, 1275
(Colo. 1985), for the proposition that it is reasonable to deny a claims whose validity
is fairly debatable, but the Court fails to see how this case necessarily stands for this
proposition. Plaintiff cites no precedent to the contrary and does not reference Savio.
Second, the parties rely on competing (and potentially inconsistent) opinions
from the Colorado Court of Appeals that both support and undermine the position that
it is necessarily reasonable to deny a fairly debatable claim. Compare, e.g., Zolman v.
Pinnacol Assur., 261 P.3d 490, 496 (Colo. App. 2011) (cited by Defendant for the
proposition that “it is reasonable for an insurer to challenge claims that are ‘fairly
debatable.’”), with Vaccaro v. Am. Family Ins. Grp., 275 P.3d 750, 759-60 (Colo. App.
2012) (cited by Plaintiff for the proposition that “if a reasonable person would find
that the insurer's justification for denying or delaying payment of a claim was ‘fairly
debatable,’ this weighs against a finding that the insurer acted unreasonably” and that
“fair debatability is not a threshold inquiry that is outcome determinative as a matter of
law”). Each party cites the Court of Appeals precedent that supports their position, but
ignore the contradictory authorities cited by the other party. Nevertheless, both types
of authorities are presumably relevant to determining the legal question at issue here.
Third, in a case not cited by either party, Hansen v. American Family Insurance
Corporation, -- P.3d --, 2013 COA 173, 2013 WL 6673066 (Colo. App. Dec. 19, 2013),
cert. pending, No. 14sc99 (Colo. 2014). The Colorado Court of Appeals attempted to
reconcile prior competing positions it had taken on the fair debatability question by
distinguishing between the fair debatability standard as it applies to common law and
statutory bad faith claims. Id. at *6-7. Under Hansen, if a claim is fairly debatable, that
finding is not dispositive as to reasonableness for purposes of the statutory claim—at
least under the facts presented in that case. Hansen suggests the same for purposes
of a common law bad faith claim. Id. Beyond not referencing Hansen, the parties have
not indicated whether this reasonableness instruction relates only to the common law
bad faith claim or to the statutory one as well.
The parties are instructed to provide further briefing that addresses: (1) whether
there is clear precedent from the Colorado Supreme Court on this legal question;
(2) if there is no controlling precedent from the Colorado Supreme Court, how this
Court should interpret the relevant precedent from the Colorado Court of Appeals; and
(3) if advisable, how the reasonableness instruction should be amended or incorporated
into the separate instructions for the statutory and bad faith claims. The parties are
encouraged to reach agreement on these questions, which would of course obviate the
need for further briefing. If briefing is necessary, the parties are instructed to address
the authorities referenced in prior briefing that support their position and those that do
PLAINTIFF’S INSTRUCTIONS RELATED TO INTERPRETATIONS
AGAINST THE DRAFTER AND INTENT OF THE PARTIES
Defendant raises objections to two instructions offered by Plaintiff. The first
relates to an instruction that directs the jury to construe ambiguous1 terms against the
drafter of a contract; the second suggests that the jury can consider statements or
conduct of the parties to determine the intent of the parties in entering into a contract.
Defendant objects to the use of these instructions, relying on language from the “Notes
on use” included with both of these jury instructions, which states “[w]hen the court has
determined the contract term is ambiguous . . . , contract interpretation is a jury issue
and this instruction should be used.”
Defendant argues this instruction should be allowed only after a “determination
by the court and there is a written contract in this case.” (Doc. # 59 at 3.) But cf. (Doc.
# 55 at 3.) (Defendant’s reply to motion in limine in which Defendant argues that “the
question for the jury to decide is whether Home Loan had the requisite possession of
the property necessary for coverage”).
In light of the directive contained in the note and Defendant’s position on this
instruction, this Court needs further briefing on the parties’ understanding of the role the
jury and this Court will play in determining liability as to Plaintiff’s breach of contract
claim. In particular, if these instructions are to be given after a threshold judicial
determination that a term is ambiguous, but ambiguous terms are to be construed
While the instruction uses the term “unclear” rather than ambiguous, this Court assumes that
as used here, “ambiguous” and “unclear” can be used interchangeably. See also Hecla Min.
Co. v. New Hampshire Ins. Co., 811 P.2d 1083, 1090 (Colo. 1991) (“Ambiguous language
must be construed in favor of the insured and against the insurer who drafted the policy.”).
against the drafter (i.e., Defendant), then this Court is uncertain how either proposed
instruction is necessary. Cf. Hansen, 2013 WL 6673066, at *6 n.2 (finding that it was
harmless error to submitting to the jury the question of whether a statutory term is
ambiguous when it should be construed against the drafter).
Further, there appears to be a dispute between the parties not only about who
determines whether there is ambiguity, but also about what sources can be used to find
that ambiguity. As this Court noted at the final trial preparation conference, there are
various approaches to interpreting the “care, custody, or control” language in the
contract under consideration here. One approach would be to look at the terms of the
contract itself and determine whether they are ambiguous based on only the four
corners of the contract. Cf. Boswell v. Travelers Indem. Co., 120 A.2d 250, 254-55
(N.J. Super. Ct. App. Div. 1956) (finding the terms “care, custody, or control” to be
inherently ambiguous for purposes of an insurance policy exclusion). Another approach
would be to determine ambiguity “depending upon the various factual circumstances
presented in [this] particular case.” 8 A.L.R.4th 563 (collecting authorities, again in the
context of cases examining a policy exclusion); see also Howard Associates, Inc. v.
Home Indem. Co., 528 P.2d 980 (Colo. App. 1974) (seemingly adopting this approach).
If the Court is to make the ambiguity determination as a matter of law, it needs more
direction from the parties on how to proceed and what evidence it should consider in
making this determination.
The parties are therefore directed to provide further briefing on how the directive
contained in the “notes on use” to the two referenced jury instructions affects both the
trial proceedings and the use of either of these instructions. They are further directed
to discuss what evidence should be considered in making the determination as to
Accordingly, the Court ORDERS that the parties file supplemental briefing on the
above issues no later than 5:00 p.m. on June 22, 2014.
20 , 2014
BY THE COURT:
CHRISTINE M. ARGUELLO
United States District Judge
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