Wardcraft Homes, Inc. v. Employers Mutual Casualty Company
ORDER. ORDERED that plaintiff's Motion for Partial Summary Judgment [Docket No. 17] is DENIED. ORDERED that defendants Motion for Summary Judgment [Docket No. 24] is GRANTED. ORDERED that, within 14 days of the entry of judgment, defendant may have its costs by filing a bill of costs with the Clerk of the Court. ORDERED that this case is dismissed in its entirety by Judge Philip A. Brimmer on 09/29/14.(jhawk, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 13-cv-00789-PAB-KLM
WARDCRAFT HOMES, INC., a Kansas corporation,
EMPLOYERS MUTUAL CASUALTY COMPANY, an Iowa corporation,
This matter is before the Court on the Motion for Partial Summary Judgment
[Docket No. 17] filed by plaintiff Wardcraft Homes, Inc. (“Wardcraft”) and the Motion for
Summary Judgment [Docket No. 24] filed by defendant Employers Mutual Casualty
Company (“EMC”). This Court has subject matter jurisdiction pursuant to 28 U.S.C.
Wardcraft manufactures pre-fabricated homes at a facility in Fort Morgan,
Colorado. Docket No. 17 at 3, ¶ 1. In 2007, Distinguished Builders, Inc. (“DBI”) was an
independent contractor of Wardcraft who purchased Wardcraft-manufactured homes
and then resold and constructed those hom es in, as relevant here, the Oak Creek,
Colorado area. Id. at 3, ¶ 2. Wardcraft was insured under a Commercial General
Liability insurance policy, policy number 2D9079709 (the “policy”), issued by EMC. Id.
The following facts are undisputed unless otherwise indicated.
at 4, ¶ 9; see also Docket Nos. 17-3 through 17-6.2 The policy provided coverage from
November 24, 2008 through November 24, 2009. Id.
In March 2007, William and Grace Stuhr contacted W ardcraft about purchasing
a modular home to be constructed in Oak Creek, Colorado. Docket No. 20-1 at 2, ¶ 8.
The Stuhrs were then contacted by DBI and, on June 19, 2007, entered into a purchase
agreement (the “purchase agreement”) with DBI for the purchase and construction of a
Wardcraft-manufactured home. Id. at 2, ¶¶ 8, 10. The home was not completed as
scheduled and, according to the Stuhrs, at the time they filed the complaint was
“unfinished with numerous defects.” Id. at 3, ¶ 18. As a result, on October 30, 2009,
the Stuhrs filed suit against Wardcraft and DBI in the District Court for Routt County,
Colorado, Case No. 09CV293 (the “Stuhr suit”). Id. at 1; Docket No. 24 at 2, ¶ 1. The
Stuhrs’ Verified Complaint (the “Stuhr Complaint”)3 asserted claims against Wardcraft
for negligence, breach of warranty, and deceptive trade practices in violation of the
Colorado Consumer Protection Act, Colo. Rev. Stat. § 6-1-105(g). Docket No. 20-1 at
5, 6, 8.
In December 2009, the Stuhr Complaint was tendered to EMC. Docket No. 24 at
2, ¶ 2. In a letter received by Wardcraft on February 5, 2010 (the “letter”), EMC
informed Wardcraft that it was denying coverage under the policy and any duty to
defend, stating, in part:
The policy appears to be a “post-1986 standard-form” Commercial General
Liability (“CGL”) policy in all material respects. See Greystone Constr., Inc. v. Nat’l Fire
& Marine Ins. Co., 661 F.3d 1272, 1277 (10th Cir. 2011).
All references to the “Stuhr Complaint” in the underlying suit are to the original
complaint, filed October 30, 2009, unless otherwise indicated.
In connection with the CGL policy, the alleged construction defects are not
property damages and there is no occurrence in connection with faulty
workmanship. In addition, the loss of use coverage is barred by Exclusion
2.I. and loss of use damages associated with construction defects or delays
are barred by Exclusion 2.m. Because there is no duty to indemnify, a
defense will not be provided. There is also no coverage under the
Commercial Umbrella Policy.
Docket No. 17-7 at 5. On March 9, 2012, the Stuhrs f iled the Second Verified
Amended Complaint (“Second Amended Complaint”), which added a negligence claim
against James Pool, Terry’s Crane and Rigging, Inc., and Preferred Transportation, Inc.
Docket No. 24 at 2, ¶ 3; Docket No. 17-2. Daniel Pence, an EMC adjustor assigned to
Wardcraft’s claim, states that Wardcraft did not tender the Second Amended Complaint
to EMC and that Wardcraft first notified EMC of the Second Amended Complaint in a
March 14, 2013 letter from Wardcraft’s counsel. Docket No. 24-3 at 1, ¶¶ 6-7.
Wardcraft responds that “EMC was put on notice of the proceedings,” but does not
otherwise identify or produce any evidence that the Second Amended Complaint was,
at any point, tendered to EMC. Docket No. 32 at 1, ¶ 4. T he record contains no
evidence that, prior to initiating the present suit, Wardcraft provided EMC with additional
information or requested that EMC reconsider its decision to deny coverage. Wardcraft
provides no evidence and makes no allegation that, after informing Wardcraft of the
decision to deny coverage, EMC took any wrongful action or inaction with respect to
Wardcraft claims to have defended the Stuhr suit. Docket No. 17 at 4, ¶ 8. In
early February 2013, the Stuhrs, Wardcraft, and DBI fully executed a settlement
agreement (the “settlement agreement”), retroactively effective as of January 14, 2013,
under which Wardcraft paid the Stuhrs $50,000 to settle the claim s brought against it in
the Stuhr suit. Docket No. 32-1 at 1, 4. 4
On February 4, 2013, Wardcraft filed the present case in the District Court for
Routt County, Colorado. Docket No. 1 at 1. On March 27, 2013, EMC tim ely filed a
Notice of Removal. Id. Wardcraft’s complaint alleges that it tendered defense of the
Stuhr suit to EMC, but that, on February 5, 2010, EMC denied coverage under the
policy and declined to defend Wardcraft in the Stuhr suit. Docket No. 3 at 3, ¶¶ 17, 21.
Wardcraft claims that it was entitled under the policy to have EMC defend it in the Stuhr
suit and indemnify it for the amount paid to the Stuhrs pursuant to the settlem ent
agreement. Id. at 3, ¶ 25. Wardcraft brings claims against EMC for breach of contract
for EMC’s failure “to undertake the defense of Plaintiff in the Stuhr suit” and failure to
indemnify, id. at 3, ¶¶ 28, 29, bad faith breach of insurance contract for “unreasonably
refusing to provide a defense,” id. at 4, ¶ 33, and unreasonable conduct in violation of
Colo. Rev. Stat. § 10-3-1115 and § 10-3-1116 f or “failure to provide a defense,” id. at 4,
¶¶ 37, 39. Wardcraft also seeks a declaratory judgment that Wardcraft was covered
under the policy and that EMC “has not complied with its duties and responsibilities to
defend or indemnify Plaintiff in the Stuhr suit.” Id. at 5, ¶ 46.
On November 1, 2013, Wardcraft filed its motion for partial summary judgment.
Docket No. 17 at 2. Wardcraft asserts that “it is entitled to summary judgment in its
favor as to Defendants’ [sic] duty to defend” and seeks an order in W ardcraft’s favor “as
to the breach of Defendant’s duty to defend Plaintiff in the underlying lawsuit.” Id. at 3,
Although the settlement agreement states that the parties agree to “keep the
terms of this Agreement . . . completely confidential,” Wardcraft attached a copy of the
settlement agreement to its response to EMC’s motion for summary judgment, which
was not filed under restriction. See Docket No. 32.
16. Although Wardcraft does not clearly indicate on which claims it seeks summary
judgment, the Court construes Wardcraft’s motion as seeking summary judgment only
as to EMC’s duty to defend the Stuhr suit. On January 15, 2014, EMC filed its motion
for summary judgment, arguing that Wardcraft’s breach of contract and declaratory
judgment claims fail because EMC had no duty to defend or indemnify Wardcraft and
arguing that Wardcraft’s bad faith and statutory claims are barred by the statute of
limitations. Docket No. 24 at 19.
II. STANDARD OF REVIEW
Summary judgment is warranted under Federal Rule of Civil Procedure 56 when
the “movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). A disputed f act is “material” if
under the relevant substantive law it is essential to proper disposition of the claim.
Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). Only disputes
over material facts can create a genuine issue for trial and preclude summary
judgment. Faustin v. City & Cnty. of Denver, 423 F.3d 1192, 1198 (10th Cir. 2005). An
issue is “genuine” if the evidence is such that it might lead a reasonable jury to return a
verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir.
The nonmoving party may not rest solely on the allegations in the pleadings, but
instead must designate “specific facts showing that there is a genuine issue for trial.”
Celotex, 477 U.S. at 324; see Fed. R. Civ. P. 56(e). “To avoid summary judgment, the
nonmovant must establish, at a minimum, an inference of the presence of each
element essential to the case.” Bausman v. Interstate Brands Corp., 252 F.3d 1111,
1115 (10th Cir. 2001) (citing Hulsey v. Kmart, Inc., 43 F.3d 555, 557 (10th Cir.1994)).
“In applying this standard, we view all facts and any reasonable inferences that might
be drawn from them in the light most favorable to the nonmoving party.” Henderson v.
Inter-Chem Coal Co., Inc., 41 F.3d 567, 569 (10th Cir. 1994).
A. Duty to Defend
Wardcraft argues that a duty to defend the Stuhr suit arose because the Stuhr
Complaint contained claims falling within the policy’s property damage coverage and
advertising injury coverage. Docket No. 17 at 5-6. EMC claims that the Stuhr
Complaint did not allege any claims potentially covered under the policy. Docket No. 24
at 2. Under Colorado law,5 the duty to defend is separate and distinct from an insurer’s
obligation to indemnify its insured. See Hecla Mining Co. v. N.H. Ins. Co., 811 P.2d
1083, 1086 n.5 (Colo. 1991). W hile “[t]he duty to indemnify relates to the insurer’s duty
to satisfy a judgment entered against the insured, . . . [t]he duty to defend concerns an
insurance company’s duty to affirmatively defend its insured against pending claims.”
Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 299 (Colo. 2003)
(internal quotations and citations omitted).
[T]he duty to defend arises where the alleged facts even potentially fall within
the scope of coverage, but the duty to indemnify does not arise unless the
policy actually covers the alleged harm. Where there is no duty to defend,
The parties appear to assume that Colorado law applies. Finding no reason to
apply the law of a different jurisdiction, the Court concurs and will apply Colorado law.
it follows that there can be no duty to indemnify. However, where there is a
duty to defend, there is not necessarily a duty to indemnify.
Constitution Assocs. v. N.H. Ins. Co., 930 P.2d 556, 563 (Colo. 1996) (emphasis in
original, citation omitted).
“As a general rule under Colorado law, an insurer’s duty to defend an insured is
triggered solely on the basis of the allegations made within the four corners of the
complaint, read against the insurance policy.” United Fire & Cas. Co. v. Boulder Plaza
Residential, LLC, 633 F.3d 951, 960 (10th Cir. 2011); see also Cotter Corp. v. Am.
Empire Surplus Lines Ins. Co., 90 P.3d 814, 829 (Colo. 2004). To show that the insurer
had a duty to defend, “the insured need only show that the underlying claim may fall
within policy coverage.” Compass Ins. Co. v. City of Littleton, 984 P.2d 606, 614 (Colo.
1999) (internal citations and quotations omitted). To defeat a duty to defend, an insurer
bears a “heavy burden.” Hecla Mining, 811 P.2d 1089. The insurer must establish that
“there is no factual or legal basis on which the insurer might eventually be held liable to
indemnify the insured.” Id. at 1090. Where policy exclusions are implicated, “the
insurer bears the burden of establishing that ‘the allegations in the complaint are solely
and entirely within the exclusions in the insurance policy.’” Cotter Corp., 90 P.3d at 829
(citation omitted). Accordingly, where “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.” City of Littleton, 984 P.2d at 613-14 (Colo. 1999). If the
underlying complaint includes more than one claim, a duty to defend against all claims
asserted arises if any one of the claims arguably is a risk covered by the relevant
insurance policy. Horace Mann Insurance Co. v. Peters, 948 P.2d 80, 85 (Colo. App.
1998) (citation omitted). The existence of a duty to defend against a particular claim is
a question of law. See Bumpers v. Guar. Trust Life Ins. Co., 826 P.2d 358, 360 (Colo.
App. 1991); see also Carl’s Italian Rest. v. Truck Ins. Exch., 183 P.3d 636, 639 (Colo.
The interpretation of an insurance policy is a legal question. Allstate Ins. Co. v.
Huizar, 52 P.3d 816, 819 (Colo. 2002). An insurance policy is a contract, which should
be interpreted consistently with the well-settled principles of contractual interpretation.
Chacon v. Am. Family Mut. Ins. Co., 788 P.2d 748, 750 (Colo. 1990). The words of the
contract should be given their plain meaning according to common usage, and strained
constructions should be avoided. Allstate Ins. Co. v. Starke, 797 P.2d 14, 18 (Colo.
1990). Clauses or phrases should not be viewed in isolation; rather, a policy’s meaning
must be determined by examining the entire instrument. Huizar, 52 P.3d at 819. Policy
provisions that are clear and unambiguous should be enforced as written. Chacon, 788
P.2d at 750. Where a term in an insurance policy is ambiguous, meaning it is
susceptible to more than one reasonable interpretation, the Court will construe the term
against the drafter and in favor of providing coverage to the insured. Sachs v. Am.
Family Mut. Ins. Co., 251 P.3d 543, 546 (Colo. App. 2010).
The parties initially disagreed as to which underlying complaint should be
considered in determining EMC’s duty to defend. In its summary judgment motion,
Wardcraft claimed that the duty to defend arose from the allegations in the Second
Amended Complaint. See, e.g., Docket No. 17 at 3, ¶¶ 4, 5 (citing Docket No. 17-2).
However, Wardcraft failed to provide any evidence disputing EMC’s claim that
Wardcraft did not tender to EMC the Second Amended Complaint. Docket No. 32 at 1,
¶ 4. In its reply brief, Wardcraft appears to have abandoned its earlier position and now
argues that “[a]ll of the information necessary to establish the duty to defend is
contained in the four corners of the original complaint.” Docket No. 29 at 8. 6 As such,
the Court will initially determine whether the duty to defend arose based upon the
allegations contained in the Stuhr Complaint.
1. Property Damage
The Court first considers the parties’ arguments concerning property damage
coverage under the policy. The policy covers “those sums that the insured becomes
legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage.’”
Docket No. 17-3 at 12, ¶ 1.a. Property damage can be either “a. Physical injury to
tangible property, including all resulting loss of use of that property . . . ; or b. Loss of
use of tangible property that is not physically injured . . . .” Docket No. 17-4 at 6-7,
¶ 17. The policy applies to, as relevant here, property damage “only if . . . [t]the ‘bodily
injury’ or ‘property damage’ is caused by an ‘occurrence’ that takes place in the
‘coverage territory.’” Docket No. 17-3 at 12, ¶ 1.b.(1). “Occurrence” is defined under
the policy as “an accident, including continuous or repeated exposure to substantially
the same general harmful conditions.” Docket No. 17-4 at 6, ¶ 13. The parties dispute
whether the Stuhr Complaint alleges an “occurrence.”
In Colorado, CGL policies protect the insured from claims for “personal injury or
To the extent the Second Amended Complaint may be relevant to the duty to
indemnify, the Second Amended Complaint is discussed below.
property damage resulting from accidents.” Boulder Plaza, 633 F.3d at 959. On the
other hand, CGL policies do not protect the insured f rom unsatisfactory performance of
a contract. Id. (“[t]he risk that an owner might reject performance as inadequate is a
‘business risk’ allocated by parties in contract, and is . . . not [covered by] general
liability insurance intended to provide coverage for injuries or damage resulting from
‘accidents’” (quoting DCB Constr. Co. v. Travelers Indem. Co. of Ill., 225 F. Supp. 2d
1230, 1231 (D. Colo. 2002)). In Greystone, the Tenth Circuit considered the meaning
of “occurrence” in the context of the duty to defend. 661 F.3d at 1276. Greystone was
a home builder and general contractor who employed subcontractors to perform all of
the work on the home that was the subject of the underlying suit. Id. The home buyers
filed suit against Greystone, claiming that the house was damaged due to a
subcontractor’s negligent design and construction of the soil drainage and structural
aspects of the home. Id. One of Greystone’s CGL insurers refused to defend the
underlying suit. Id. The Tenth Circuit considered whether property damage arising
from poor workmanship constitutes an “occurrence” under the CGL def inition of the
term. Id. at 1281. The court determined that an occurrence under a CGL policy can
encompass “unforeseeable damage to nondefective property arising from faulty
workmanship.” Id. at 1282.7 With respect to foreseeability, the question is “whether
damages would have been foreseeable if the builder and his subcontractors had
completed the work properly.” Id. at 1285. With respect to defective property, the
In other words, “injuries flowing from improper or faulty workmanship constitute
an occurrence so long as the resulting damage is to nondefective property, and is
caused without expectation or foresight.” Id. at 1284.
Tenth Circuit noted that the “obligation to repair defective work is neither unexpected
nor unforeseen under the terms of the construction contract or the CGL policies [and
t]herefore . . . represents an economic loss that does not trigger a duty to defend under
the CGL policies.” Id. at 1286. However, if defective work causes damage to a
nondefective aspect of the property, CGL coverage is implicated. Id. In the case of the
claims against Greystone, damage to the defective soil-drainage and structural
elements themselves was not covered, but damage suffered by nondefective elements
of the home that may have been caused by those defective elements was covered
under the CGL policy. Id.
Applying Greystone,8 the Court reviews the Stuhr Complaint to determine
whether it contains a factual or legal basis to conclude that the claimed damages
resulted from an occurrence. The Court first considers allegations that may be related
to physical injury to the property at issue. The Stuhr Complaint alleges that Wardcraft
negligently constructed the Stuhrs’ home and specifically claims that Wardcraft
improperly installed the floor heating system and provided cabinets and vanities that did
not comply with the purchase agreement. Docket No. 20-1 at 3, ¶ 17, at 5, ¶ 44. T he
The Court notes that the Colorado Supreme Court has granted a petition for
certiorari in Colorado Pool Systems Inc. v. Scottsdale Insurance Co., 2013 WL 4714283
(Colo. Sep. 3, 2013), a case where the Colorado Court of Appeals applied Greystone in
concluding that the plaintiff’s CGL policy covered damage to “nondefective third-party
work.” Colo. Pool Sys. Inc. v. Scottsdale Ins. Co., 317 P.3d 1262, 1271 (Colo. App.
2012). The Court also notes that, for purposes of Colorado insurance law, the term
“accident” is now defined by Colo. Rev. Stat. § 13-20-808. However, the parties do not
claim that § 13-20-808 applies and, because the statute w as enacted in 2010 and has
been found not to apply retroactively to policies “for which the policy period had not yet
expired on May 21, 2010,” the Court will not apply it in this case. TCD, Inc. v. Am.
Family Mut. Ins. Co., 296 P.3d 255, 260 (Colo. App. 2012).
Stuhr Complaint alleges that the cost to complete the home exceeded that which was
contemplated by the purchase agreement, causing the Stuhrs to use “funds from their
retirement account to pay the extra charges and fees. As a result, Plaintiffs will be
required to pay tax penalties and fees . . . .” Id. at 3, ¶ 16. Neither party specifically
addresses this allegation. In the absence of any argument or allegations to the
contrary, the Court finds no indication that any portion of such actual and consequential
damages flowed from a nondefective aspect of the Stuhrs’ home. See United Fire, 633
F.3d at 959.
The Court next turns to the question of whether the Stuhr Complaint alleged the
property damage to nondefective property in the form of loss of use of property “that is
not physically injured.” Docket No. 17-4 at 7, ¶ 17. DBI allegedly promised that the
Stuhrs’ home would be completed by Christmas 2007, but delivery of the modules was
delayed, the issuance of a certificate of occupancy was delayed, and the Stuhrs were
unable to move into the home until December 22, 2008. Docket No. 20-1 at 3, ¶ 18.
Due to such delays, the Stuhrs alleged that they:
[P]a[id] additional monies to extend their construction loan to keep their
permanent financing available.
[R]esided in a condominium they owned until the home was ready for
occupation . . . and were unable to rent the condominium for income
[H]ad to rent storage units for an additional period of time to store household
belongings and appliances for the home.
Id. at 3-4, ¶ 19, 24. EMC argues that the Stuhr Complaint fails to allege “non-defective
portions,” such that the only damage claimed is to defective portions of the home.
Docket No. 24 at 10. However, the Stuhr Complaint need only contain sufficient facts
to make it possible that the loss of use due to nondefective elements may have been
caused by defective elements. It is possible that Wardcraft’s poor workmanship with
respect to the floor heating system and failure to install correct cabinets and vanities
caused a delay resulting in loss of use to other, nondefective aspects of the home.
EMC also argues that the Stuhr Complaint does not state what property was
damaged and, as such, fails to allege that any property damage occurred. Docket No.
33 at 5-6. However, this argument fails to account for the fact that loss of use to
property that has not been physically injured is considered property damage under the
policy. Docket No. 17-4 at 6-7, ¶ 17. Moreover, the Stuhr Complaint’s specific
allegations concerning loss of use damages, see, e.g., Docket No. 20-1 at 4, ¶ 24,
sufficiently allege “additional consequential property damages have been inflicted upon
a third party as a result of the insured’s activity.” See General Sec. Indem. Co. of Ariz.
v. Mountain States Mut. Cas. Co., 205 P.3d 529, 535 (Colo. App. 2009), superseded by
statute as stated in TCD, Inc. v. Am. Family Mut. Ins. Co., 296 P.3d 255 (Colo. App.
2012). Thus, this is not a case, as EMC suggests, of conclusory allegations of
consequential damages. Cf. TCD, Inc., 296 P.3d at 259 (“Notably absent from
Gateway’s counterclaims is any specific allegation that Petra caused damage beyond
its own work product.”). The alleged damages also meet the threshold for
unforeseeability established in Greystone. The Stuhr Complaint contains no suggestion
that Wardcraft’s or DBI’s workmanship was intentionally poor or that they intended for
their defective work to cause a loss of use to other nondefective aspects of the Stuhrs’
home. See Greystone, 661 F.3d at 1285 (“‘occurrence’ excludes from coverage only
‘those damages that the insured knew would flow directly and immediately from its
intentional act’” (quoting Hecla Mining, 811 P.2d at 1088) (emphasis in original)). The
Court finds that the Stuhr Complaint contains sufficient allegations that make it possible
that poor workmanship to defective aspects of the Stuhrs’ home caused unforeseeable
property damage in the form of loss of use to nondefective aspects of the Stuhrs’ home
and, as a result, finds that the Stuhr Complaint alleged an occurrence with respect to
property damage in the form of loss of use of property that was not physically injured.
b. Impaired Property Exclusion
The Court turns to EMC’s argument that coverage is barred by the impaired
property exclusion. Docket No. 24 at 15. The impaired property exclusion states:
“Property damage” to “impaired property” or property that has not been
physically injured, arising out of:
(1) A defect, deficiency, inadequacy or dangerous condition in “your product”
or “your work”; or
(2) A delay or failure by you or anyone acting on your behalf to perform a
contract or agreement in accordance with its terms.
Docket No. 17-3 at 16, ¶ m. “Your product” is defined under the policy as “goods or
products, other than real property, manufactured, sold, handled, distributed or disposed
of by” the insured or others trading under the insured’s name. Docket No. 17-4 at 7,
¶ 21. “Your work” means “(1) Work or operations performed by you or on your behalf;
and (2) Materials, parts or equipment furnished in connection with such work or
operations.” Id. at 7, ¶ 22. Because the Stuhr Complaint sufficiently alleged an
occurrence with respect to loss of use of property that was not physically injured, in
order to defeat the duty to defend, EMC must show that this occurrence falls “solely and
entirely within the exclusions in the insurance policy.’” Cotter Corp., 90 P.3d at 829
(citation omitted); see also DCB Constr., 225 F. Supp. 2d at 1232-33 (determining
whether alleged occurrence was subject to policy exclusions).
EMC argues that this exclusion bars coverage for the loss of use of nondefective
property under paragraph (1) and for all claims for delay damages for failure to deliver
the home on time under paragraph (2). Docket No. 24 at 15. W ardcraft does not
respond to EMC’s argument that the impaired property exclusion applies. Thus, the
Court finds that Wardcraft has conceded EMC’s argument on this issue. Moreover, the
Court is otherwise satisfied that the exclusion applies to the alleged occurrence
identified above. The defects alleged in the Stuhr Complaint occurred while the Stuhrs’
home was being manufactured and before the home became real property. As such,
the manufactured home falls within the definition of “Your product.” To the extent the
Stuhr Complaint alleges that the home’s defects resulted in loss of use damages, such
damages arise out of a defect and are excluded under m.(1). To the extent such loss
of use damages arose out of a delay or failure by Wardcraft or DBI to perform under the
purchase agreement, such damages are excluded under m.(2). To the extent that any
delay in delivery of the modules is attributed to Wardcraft, it falls within the definition of
“Your work” and is excluded for the same reasons. See DCB Constr. Co., Inc. v.
Travelers Indem. Co. of Ill., 225 F. Supp. 2d 1230, 1233 (D. Colo. 2002) (underly ing
claim that constructed walls were not designed according to contractual specifications
fell within impaired property exclusion because claim did not indicate that walls were in
fact physically damaged).
Even if the Stuhr Complaint contains allegations that damages were caused by
delay after the home was considered real property, the Stuhrs’ home would be
considered impaired property, which is defined as
tangible property, other than ‘your product’ or ‘your work’, that cannot be
used or is less useful because:
a. It incorporates ‘your product’ or ‘your work’ that is known or thought to be
defective, deficient, inadequate or dangerous; or
b. You have failed to fulfill the terms of a contract or agreement;
if such property can be restored to use by:
a. The repair, replacement, adjustment, or removal of ‘your product’ or ‘your
b. Your fulfilling the terms of the contract or agreement.
Docket No. 17-4 at 4-5, ¶ 8. The Stuhrs’ home, even after it became real property,
incorporated Wardcraft’s product that was known to be defective (or violated the terms
of the purchase agreement) and could have been restored in either manner set forth in
the policy. Thus, if the Stuhrs’ home was impaired property, for the above stated
reasons, it falls under the impaired property exclusion. The Court concludes that EMC
has satisfied its burden of showing that the impaired property exclusion applies to the
alleged occurrence.9 See Am. Mfrs. Mut. Ins. Co. v. Seco/Warwick Corp., 266 F. Supp.
2d 1259, 1268 (D. Colo. 2003) (“Indeed, Goodrich has claim ed no tangible ‘property
damage’ apart from . . . excluded [physical] damage to Seco’s furnaces. Goodrich
argues that such property damage exists in the loss of use of furnace capacity . . . ,
[but] even if such damage could be considered property damage, rather than purely
economic loss, it falls under [impaired property] exclusion.”). The Court finds that the
The Court need not consider whether any other identified exclusions apply.
Stuhr Complaint contains no factual or legal basis facts upon which to conclude that
EMC would be liable for property damage as defined by the policy.
2. Advertising Injury
The parties dispute whether the Stuhr Complaint contains sufficient allegations
to trigger a duty to defend under the policy’s personal and advertising injury coverage.
Docket No. 17 at 11; Docket No. 24 at 16. T he policy provides coverage for damages
the insured is legally obligated to pay because of “personal and advertising injury,”
which is an injury
arising out of one or more of the following offenses:
a. False arrest, detention or imprisonment;
b. Malicious prosecution;
c. The wrongful eviction from, wrongful entry into, or invasion of the right of
private occupancy . . . ;
d. Oral or written publication, in any manner, of material that slanders or
libels a person or organization or disparages a person’s or organization’s
good, products or services;
e. Oral or written publication, in any manner, of material that violates a
person’s right of privacy;
f. The use of another’s advertising idea in your “advertisement”; or
g. Infringing upon another’s copyright, trade dress or slogan in your
Docket No. 17-4 at 6, ¶ 14. 10 Wardcraft vaguely suggests that its potential liability for
The term “advertisement” in the policy is defined as “a notice that is broadcast
or published to the general public or specific market segments about your goods,
products or services for the purpose of attracting customers or supporters.” Id. at 4,
¶ 1. EMC does not appear to dispute the Stuhr Com plaint implicates the use of the
Energy Star moniker in advertising.
such damages arose out of its “use of another’s advertising idea.” Docket No. 17 at 11.
Wardcraft must therefore demonstrate that (1) the underlying complaint can be read to
allege the use of another’s advertising idea in its advertisement, and (2) Wardcraft’s
advertising activities caused the injury which formed the basis for the Stuhrs’ damages.
DISH Network Corp. v. Arch Specialty Ins. Co., 659 F.3d 1010, 1015 (10th Cir. 2011);
see also Novell, Inc. v. Fed. Ins. Co., 141 F.3d 983, 985-86 (10th Cir. 1998).
Colorado courts provide little guidance as to the proper interpretation of “the use
of another’s advertising idea.” DISH, 659 F.3d at 1021. The Court therefore will look to
the definition provided by other jurisdictions. Most courts presented with this issue have
held that the “use of another’s idea” means the “wrongful taking of the manner by which
another advertises its goods or services” or the “wrongful taking of an idea about the
solicitation of business.” Discover Fin. Servs., LLC v. Nat’l Union Fire Ins. Co., 527 F.
Supp. 2d 806, 824 (N.D. Ill. 2007) (quoting Amazon.com Int’l, Inc. v. Am. Dynasty
Surplus Lines Ins. Co., 85 P.3d 974, 976 (W ash. App. 2004)). Wardcraft makes no
meaningful attempt to suggest that the Stuhr Complaint alleges that Wardcraft
wrongfully took another’s advertising idea and the Stuhr Complaint contains no such
suggestion. The Stuhr Complaint contains no allegations that raise the possibility that
Wardcraft wrongfully used the Energy Star moniker without permission or otherwise
misappropriated the Energy Star moniker from its source. Cf. DISH, 659 F.3d at 1022
(finding that duty to defend arose where complaint alleged that insured misappropriated
a product designed for advertising purposes).11 Rather, Wardcraft cites Flodine v. State
To the extent Wardcraft makes factual assertions concerning how a business
acquires the right to use the Energy Star moniker, such facts are outside the four
Farm Ins. Co., 2001 WL 204786, at *2 (N.D. Ill. March 1, 2001), 12 in support of its
argument that the advertising use of a descriptive term that does not apply to the
product constitutes the “use of another’s idea.” In Flodine, Native American Arts, an
Indian arts and crafts organization, and the Ho-Chunk Nation, an Indian tribe, broug ht
suit against a craft distributor for falsely advertising that its products were made by
Native Americans, claiming consumer confusion and loss of sales. Id. at *2. The craft
distributor then brought claims against the craft maker, claiming that the craft maker
misrepresented the nature of the goods. Id. The craft maker tendered the complaint to
her CGL insurer. Id. at *4. The court found that the false “marketing and promotion of
products as ‘authentic Indianmade’ reasonably [fell] within the common meaning of
‘style of doing business’ or ‘advertising idea,’” but also noted that the underlying claims
were “analogous to the kind of claims for trademark or trade dress infringement that fall
within the definition of ‘advertising injury.’” Id. at *11. Here, however, the Stuhrs’ claims
are not analogous to any of the other enumerated advertising injuries because, as
noted above, the Stuhr Complaint contains no allegation that Wardcraft
misappropriated the Energy Star moniker. Thus, Flodine is distinguishable, and the
Court declines to adopt Wardcraft’s interpretation of the term “use of another’s
advertising idea.” Moreover, Wardcraft fails to cite any cases where a claim for false
corners of the Stuhr Complaint and therefore cannot be appropriately considered in
determining EMC’s duty to defend. See United Fire, 633 F.3d at 960.
The other cases Wardcraft cites on the issue of advertising injury found that the
term “use of another’s advertising idea” was ambiguous. See, e.g., Am. Simmental
Assoc. v. Coregis Ins. Co., 282 F.3d 582, 587 (8th Cir. 2002). Such cases are,
however, unpersuasive because Wardcraft does not argue that the policy is ambiguous
and the Court finds no basis for so concluding.
advertising brought by the consumer was found to be within the scope of advertising
injury. The Court finds that the Stuhr Complaint does not allege advertising injury as
defined in the policy.
Even if the Stuhr Complaint alleged the existence of an advertising injury,
Wardcraft must show that the complained of injury arose in the course of advertising.
DISH, 659 F.3d at 1015. As the Tenth Circuit stated in Novell, for an advertising injury
to trigger a duty to defend, the “advertising activities must cause the injury-not merely
expose it.” 141 F.3d at 989 (emphasis in original; citation omitted). EMC relies on
Basic Research, LLC v. Admiral Ins. Co., 297 P.3d 578 (Utah 2013), in support of its
argument that the Stuhrs’ damages did not arise out of an advertising injury. Docket
No. 24 at 16. In Basic Research, purchasers of a weight loss product brought suits
against the product’s manufacturer, claiming false advertising and that the product
failed to perform as promised in marketing slogans. 297 P.3d at 579. The
manufacturer tendered the claims to its insurer, who refused to defend the suits. Id.
Interpreting a CGL policy, the relevant portions of which appear identical to the policy at
issue in the present case, the court found that the underlying claims were not covered
because the claims were not dependant on the source of the marketing slogans, but
rather on whether the manufacturer “used the slogans to market a defective product.”
Id. at 581. As such, the court held that allowing the manufacturer to invoke coverage
“based on underlying claims of this sort would require indemnification where there is
any but-for causal link between the ‘use of another’s advertising idea’ and an underlying
plaintiff’s damages, no matter how legally irrelevant the link.” Id. (emphasis in original).
Wardcraft’s attempts to distinguish Basic Research are unavailing and fail to
account for the fact that the Stuhr Complaint does not implicate the source of the
Energy Star moniker. Moreover, the Court finds the reasoning in Basic Research
persuasive. The Stuhr Complaint does not suggest that the Stuhrs suffered injury from
the mere use of the Energy Star representation. Rather, the Stuhrs were “actual
consumers” of the non-Energy Star compliant Wardcraft home and “sustained damages
as a result.” Docket No. 20-1 at 8, ¶ 76. As such, their injuries arose f rom Wardcraft’s
failure to deliver on the promise that the Stuhrs’ home would be Energy Star compliant,
not Wardcraft’s misappropriation of the Energy Star moniker. In other words, had the
Stuhrs instead chosen not to purchase a hom e, they would have suffered no injury as a
result of Wardcraft’s use of the Energy Star moniker. Conversely, if Wardcraft had
delivered on its promise, then the Stuhrs would not have suffered the claimed injury.13
Wardcraft argues that the CCPA allows a consumer to recover if he or she “had been
exposed to the defendant’s deceptive advertisements and had either made purchases
or had undertaken any other activities in reliance on the advertisements.” Docket No.
32 at 6 (quoting Crowe v. Tull, 126 P.3d 196, 210 (Colo. 2006)). The Court rejects
Wardcraft’s argument. The Stuhrs’ damages were not caused by the mere fact that
Wardcraft used the Energy Star moniker, but instead arose from the Stuhrs’ status as
“actual consumers” of the advertised product. See Basic Research, 297 P.3d at 581-82
Flodine is also distinguishable on this basis because Native American Arts and
the Ho-Chunk Nation claimed a loss of sales because consumers “were persuaded to
buy and wished to purchase authentic goods but were tricked into buying the
counterfeits,” and, unlike the Stuhrs, were not consumers of the wrongfully advertised
products. 2001 WL 204786 at *2.
(“the underlying claims do not depend on whether Basic Research owned or was
otherwise entitled to use the slogans, but on whether the slogans constitute false
advertising”). The Court finds that the Stuhr Complaint does not implicate the policy’s
coverage for advertising injury. The Court will grant EMC’s motion for summary
judgment on this issue.
B. Duty to Indemnify
Given that the Court concludes that EMC had no duty to defend the Stuhr suit,
the question becomes whether this conclusion forecloses Wardcraft’s claim for failure
to indemnify. Ordinarily, “once an insurer has prevailed on the duty to defend, the issue
of the duty to indemnify is ripe for resolution because “[w]here there is no duty to
defend, it follows that there can be no duty to indemnify.” Compass, 984 P.2d at 621
(quotations omitted); see also Boulder Plaza, 633 F.3d at 961. For the foregoing
reasons, EMC had no duty to defend the Stuhr suit upon receipt of the Stuhr Complaint
and no corresponding duty to indemnify arising from the Stuhr Complaint. However, the
Stuhr suit was not entirely adjudicated based upon the Stuhr Complaint, but, after
March 9, 2012, was litigated under the Second Amended Complaint until the parties
reached a settlement. There is no dispute that Wardcraft did not tender the Second
Amended Complaint to EMC as contemplated by the policy’s notice provision. See
Docket No. 17-4 at 2, ¶¶ 2.b(2), 2.c(1) (requiring Wardcraft to notify EMC of any suit “as
soon as practicable” and “send [EMC] copies of any demands, notices, summonses or
legal papers received in connection with the claim or ‘suit’”).14 Neither party addresses
The Court need not reach Wardcraft’s argument that, because EMC denied
coverage, Wardcraft was no longer under a duty to provide EMC any additional
the effect of the Second Amended Complaint, which EMC did not have notice of until
after the commencement of this suit. Docket No. 24 at 3, ¶ 4.
The Complaint and Second Amended Complaint contain substantially identical
factual allegations. Compare Docket No. 20-1 at 2-4, with Docket No. 17-2 at 2-5. The
only apparent difference between the two complaints is that the Second Amended
Complaint’s negligence claim against Wardcraft is additionally asserted against Mr.
Pool, Terry’s Crane and Rigging, Inc., and Preferred Transportation, Inc. and alleges
that all four entities owed a duty of care “in connection with any services they performed
related to the construction of Plaintiff’s home,” that all four entities “negligently
performed the services they provided and breached or may have breached their duties
of care related to the construction of Plaintiff’s home,” and that the Stuhrs incurred
damages as a result. Docket No. 17-2 at 6, ¶¶ 48-50. In responding to EMC’s motion
for summary judgment, which raises the issue of EMC’s duty to indemnify, Wardcraft
does not argue that the Second Amended Complaint materially changes the allegations
forming the basis of the Stuhr suit and the Court finds no basis for so concluding.15
Rather, Wardcraft admits that the Second Amended Complaint “only added additional
allegations against additional DBI subcontractors, the conduct of whom DBI may or may
not have been legally responsible for.” Docket No. 32 at 9. Because neither party has
documents from the Stuhr suit. Docket No. 29 at 8; see also Docket No. 17-4 at 2.
Even if EMC were imputed with knowledge of the Second Amended Complaint,
Wardcraft, as discussed below, fails to provide any evidence or argument suggesting
that the outcome would be different.
To the contrary, in its reply brief Wardcraft states “[a]ll of the information
necessary to establish the duty to defend is contained in the four corners of the original
complaint.” Docket No. 29 at 8.
identified a basis upon which to conclude the application of the impaired property
exclusion would differ under the Second Amended Complaint, the Court concludes that
no duty to indemnify arose from the Second Amended Complaint.16 Moreover,
Wardcraft identifies no evidence that would raise a genuine dispute of material fact that
the claims covered by the settlement agreement differ in any material respect from the
pleadings in the Stuhr suit. See Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74
P.3d 294, 301 (Colo. 2003) (noting that a trial court can review matters outside the
complaint “as to whether some portion or all of the settlement would be properly subject
to indemnification”). As such, the Court finds that EMC is entitled to summary judgment
on Wardcraft’s claim that EMC breached the insurance contract by refusing to
indemnify Wardcraft for payment made under the settlement agreement.
C. Claims for Bad Faith Breach of Insurance Contract and Violation of
Colo. Rev. Stat. § 10-3-1115 and § 10-3-1116
EMC moves for summary judgment on Wardcraft’s claim for bad faith breach of
insurance contract and claim for violation of Colo. Rev. Stat. §§ 10-3-1115 and 10-31116, arguing that both claims are barred by the statute of limitations. Docket No. 24 at
7. Bad faith actions must be “commenced within two years after the cause of action
accrues.” Colo. Rev. Stat. § 13-80-102(1)(a). A bad faith cause of action accrues “on
the date both the injury and its cause are known or should have been known by the
exercise of reasonable diligence.” Colo. Rev. Stat. § 13-80-108(1); accord Brodeur v.
Am. Home Assurance Co., 169 P.3d 139, 147 (Colo. 2007) (applying § 13-80-108 to
Although Wardcraft argues that the Second Amended Complaint’s addition of
parties is relevant to the application of the “Your work” exclusion, as noted above, the
Court need not decide whether that exclusion applies.
bad faith tort claim). “Each bad faith act constitutes a separate and distinct tortious act,
on which the statute of limitation begins to run anew when plaintiff becomes aware of
the injury and its cause.” Cork v. Sentry Ins., 194 P.3d 422, 427 (Colo. App. 2008).
Wardcraft’s complaint, filed on February 4, 2013, identifies a single act of bad
faith: the February 5, 2010 letter from EMC denying coverage, indicating that it would
not indemnify Wardcraft, and declining to provide a defense. Docket No. 3 at 3, ¶ 21;
Docket No 17-7 at 5 (“Because there is no duty to indemnify, a defense will not be
provided.”). Wardcraft does not dispute that, as of February 5, 2010, it was aware of an
injury and cause as related to EMC’s refusal to defend the Stuhr suit. See Docket No.
32 at 3. As such, that portion of Wardcraft’s claim is barred by the statute of limitations.
Wardcraft argues that it has also alleged that EMC acted in bad faith by
unreasonably refusing to indemnify. Id. Wardcraft argues that, because the
contractual duty to indemnify did not arise until it settled the Stuhr suit on January 31,
2013, Wardcraft had no injury until it became responsible for paying the Stuhrs under
the settlement. Id. However, Wardcraft does not appear to allege that EMC’s actions
with respect to the duty to indemnify were unreasonable. Although the general factual
allegations in Wardcraft’s complaint allege that it was entitled to defense and indemnity,
Wardcraft’s bad faith claim alleges only that EMC unreasonably refused to “provide a
defense” and makes no suggestion that EMC engaged in bad faith for failure to
indemnify. See Docket No. 3 at 4, ¶¶ 31-35. As such, W ardcraft does not allege that
EMC “knowingly or recklessly disregarded the validity” of Wardcraft’s claim for
indemnity. See Goodson v. Am. Standard Ins. Co. of Wis., 89 P.3d 409, 415 (Colo.
2004). Because Wardcraft fails to plead a claim for bad faith related to EMC’s refusal
to indemnify, Wardcraft fails to show that any aspect of its bad faith claim survives.
The Court turns to Wardcraft’s claims for violation of § 10-3-1115 and § 10-31116, which accrue in the same manner as bad faith claims. See Gargano v. Owners
Ins. Co., No. 12-cv-01109-CMA-BNB, 2014 WL 1032303, at *3 (D. Colo. March 18,
2014) (applying § 13-80-108 to § 10-3-1115 and § 10-3-1116 c laims); Duvall v. Cit Grp.,
No. 13-cv-02634-MSK-MJW, 2014 WL 537445, at *6 (D. Colo. Feb 11, 2014) (same).
The parties do not appear to dispute that a two year statute of limitations applies to
Wardcraft’s statutory claims. Docket No. 24 at 6; Docket No. 32 at 2-3; see also
Gargano, 2014 WL 1032303, at *3 (applying § 13-80-102 to § 10-3-1115 and § 10-31116 claims); Alarcon v. Am. Fam. Ins. Grp., No. 08-cv-01171-MSK-MJW, 2010 WL
2541131, at *1 n.5 (D. Colo. June 18, 2010) (noting that both common law bad faith
and §§ 10-3-1115 and 10-3-1116 are tort claim s and are therefore “governed by the
same statute of limitation”). As above, Wardcraft does not dispute that its claim for
violation of § 10-3-1115 and § 10-3-1116 is based upon EMC’s “f ailure to provide a
defense” and is therefore time barred. As such, that portion of Wardcraft’s claim is
dismissed. Although Wardcraft again claims to bring a statutory claim based upon
EMC’s refusal to indemnify, Wardcraft’s complaint does not contain factual allegations
that give rise to a claim that EMC unreasonably denied or delayed payment of a claim
for indemnity. Docket No. 3 at 4, ¶¶ 36-40; see also § 10-3-1115(1)(a) (stating that
insurer “shall not unreasonably delay or deny payment of a claim for benefits”). Thus,
Wardcraft fails to show that any portion of its statutory claim accrued within the statute
of limitations.17 The Court finds that EMC is therefore entitled to summary judgment on
Wardcraft’s claim for violation of § 10-3-1115 and § 10-3-1116.
For the foregoing reasons, it is
ORDERED that plaintiff’s Motion for Partial Summary Judgment [Docket No. 17]
is DENIED. It is further
ORDERED that defendant’s Motion for Summary Judgment [Docket No. 24] is
GRANTED. It is further
ORDERED that, within 14 days of the entry of judgment, defendant may have its
costs by filing a bill of costs with the Clerk of the Court. It is further
ORDERED that this case is dismissed in its entirety.
DATED September 29, 2014.
BY THE COURT:
s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge
Because Wardcraft’s claims are untimely under a two year statute of
limitations, the Court need not decide whether a shorter limitations period applies.
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