Gebremedhin et al v. American Family Mutual Insurance Company

Filing 177

ORDER granting 71 , 83 , and 95 Motions to Dismiss; denying as moot 137 and 148 Motions to Compel; denying as moot 173 Motion to Amend/Correct/Modify. American Family's Third-Party Complaint is DISMISSED IN ITS ENTIRETY. Pursuant to Fed. R. Civ. P. 54(d)(1), Third-Party Defendants shall have their costs by filing a Bill of Costs with the Clerk of the Court within ten days of the entry of judgment. By Judge Christine M. Arguello on 03/31/2015. (athom, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 13-cv-02813-CMA-NYW
WELDESAMUEL GEBREMEDHIN, an individual,
TERHAS DESTA, an individual,
ABRHAM GIDAY, a minor, by and through his guardians and natural parents,
Weldesamuel Gebremedhin and Terhas Desta,
Plaintiffs,
v.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY,
Defendant,
v.
GLENN TURNER, an individual,
VERONICA TURNER, an individual,
SPECIAL KIDS SPECIAL FAMILIES, INC., a Colorado corporation,
GRANITE STATE INSURANCE COMPANY, a Pennsylvania corporation,
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, a Pennsylvania
corporation,
Third-Party Defendants.
ORDER FOR MOTIONS TO DISMISS
This matter is before the Court on the Motions to Dismiss filed by Third-Party
Defendants Glenn and Veronica Turner, Special Kids Special Families, Inc., Granite
State Insurance Company, and National Union Fire Insurance Company of Pittsburgh.
Because American Family has failed to establish an actual case or controversy as to the
Turners, the Turners’ Renewed Motion to Dismiss is granted. Further, because the

Turners have no right to indemnity from Special Kids Special Families, Inc. to which
American Family can become subrogated, Special Kids Special Families, Inc.’s
Renewed Motion to Dismiss is granted. Lastly, because American Family’s claims
against Granite State Insurance Company and National Union Fire Insurance Company
of Pittsburgh fail, their Renewed Motion to Dismiss is also granted.
I.

BACKGROUND

This case arose out of an underlying personal injury suit for an alleged injury
sustained by Plaintiff Abrham Giday, a minor, during his stay in foster care. (Doc. # 83,
2.) Because Abrham Giday is a minor, his parents and guardians, Plaintiffs
Weldesamual Gebremedhin and Terhas Desta (collectively, “Plaintiffs”) filed suit in state
court against Third-Party Defendants Glenn and Veronica Turner (the “Turners”) and
Special Kids Special Families, Inc. (“SKSF”), which is insured by Granite State
Insurance Company (“Granite State”), and National Union Fire Insurance Company of
Pittsburgh (“NUFIC”) (“State Litigation”). 1 (Id.) At the time of the alleged acts in the
State Litigation, Defendant American Family Mutual Insurance Company (“American
Family”), under a Colorado Homeowners Policy, insured the Turners. 2 (Doc. # 40.) The
Turners, believing themselves to be covered under the American Family Policy
tendered the State Litigation to American Family for coverage. (Doc. # 40, 2.)
American Family denied coverage. (Id.)

1

The underlying lawsuit was filed in state court in El Paso County and is captioned
Gebremedhin, et al v. Turner, et al. (Doc. # 40, 2.)
2
The insurance policy was number 05-PB3893-01 for the policy period of February 20, 2009 to
February 20, 2010. (Doc. # 40, 2.)
2

Thereafter, pursuant to the Colorado Supreme Court’s decision in Nunn v. MidCentury Ins. Co., 244 P.3d 116 (Colo. 2010), the Turners entered into an agreement
with Plaintiffs, pursuant to which the parties agreed that judgment would enter in the
State Litigation in favor of Plaintiffs in an amount to be determined at a subsequent
hearing before a neutral arbiter, and the Turners would assign all their rights, title, and
interest in their claims against American Family to Plaintiffs. (Id. at 3.) The neutral
arbiter entered judgment for Plaintiffs in the amount of $12,583,543.34. (Id. at 3, n.2.)
Similarly, SKSF, Granite State, and NUFIC also settled with Plaintiffs. (Doc. # 83, 4.)
The settlement agreement states that Plaintiffs “completely release and forever
discharge” SKSF and its insureds, Granite State and NUFIC, from “any and all past,
present, and future claims, demands, obligations, actions, causes of action, rights,
damages, costs, losses of services, [and] expenses and compensation of any nature
whatsoever.” (Doc. # 83-1.) This release is “a fully binding and complete settlement
among” the Plaintiffs, SKSF, and its insureds, Granite State and NUFIC. (Id.)
In the instant case, Plaintiffs, by assignment, seek the benefits of the American
Family homeowners policy issued to the Turners and any other damages to which the
Turners may have been entitled as a result of American Family’s failure to defend or
participate in the State Litigation on behalf of the Turners. (Doc. 83, 3.) American
Family, in turn, filed a third-party complaint against the Turners, SKSF, Granite State,
and NUFIC, alleging claims for declaratory relief, subrogation, contribution, and breach
of the covenant of good faith and fair dealing (“Third-Party Complaint”). (Id.)

3

On January 27, 2014, SKSF filed a motion to dismiss American Family’s ThirdParty Complaint for failure to state a claim upon which relief can be granted, alleging
that the Turners have no right to indemnity from SKSF to which American Family can
become subrogated. 3 (Doc. # 39, 2.) On January 31, 2014 and February 19, 2014, the
Turners each filed a motion to dismiss the Third-Party Complaint for lack of subject
matter jurisdiction, asserting that because they assigned all rights, title, and interest to
their American Family claims to Plaintiffs, they are neither a necessary nor a proper
Third-Party Defendant. 4 (Doc. # 40, 4.) On May 27, 2014, Granite State and NUFIC
filed a motion to dismiss the Third-Party Complaint for failure to state a claim upon
which relief may be granted, arguing that American Family has no right to recover its
own tort liability from other insurers nor does it have any right of contribution or
subrogation for payment of its indemnity obligations under its policy issued to the
Turners. 5 (Doc. # 83, 2.)
II.
A.

DISCUSSION

GLENN AND VERONICA TURNER
American Family’s Third-Party Complaint asserts one claim for relief against the

Turners—requesting the Court to declare as a matter of law that American Family had
3

American Family subsequently filed a First Amended Third-Party Complaint on May 13, 2014.
(Doc. # 70.) SKSF filed a Renewed Motion to Dismiss on May 13, 2014, incorporating by
reference its arguments from its Motion to Dismiss. (Doc. # 71.) American Family responded
on June 6, 2014 (Doc. # 86), and SKSF did not reply.
4
The Turners filed a Renewed Motion to Dismiss on July 3, 2014, incorporating by reference
their arguments in their Motions to Dismiss. (Doc. # 95, ¶ 4.) American Family filed a
Response on July 25, 2014 (Doc. # 104), to which the Turners replied on August 11, 2014 (Doc.
# 109).
5
American Family responded on July 3, 2014 (Doc. # 96), to which Granite State and NUFIC
replied on July 24, 2014 (Doc. # 101).
4

no duty to defend or indemnify them in the State Litigation because its insurance policy
with the Turners was rescinded (void ab initio). 6 In their motions to dismiss, the
Turners, pursuant to Fed. R. Civ. P. 12(b)(1), argue that because they assigned their
rights, title, and interest in their claims against American Family to Plaintiffs, there exists
no justiciable controversy between American Family and the Turners; and thus, the
Court lacks jurisdiction.
1.

Standard of Review

As the language of the Declaratory Judgment Act makes clear, the Court must
consider both jurisdiction and the prudence of maintaining the action: “[i]n a case of
actual controversy within its jurisdiction . . . any court of the United States . . . may
declare the rights and other legal relations of any interested party seeking such
declaration.” 28 U.S.C. 2201(a); Kunkel v. Continental Cas. Co., 866 F.2d 1269, 1273
(10th Cir. 1989).
Thus, the court must analyze two separate hurdles in a declaratory judgment
action. Surefoot LC v. Sure Foot Corp., 531 F.3d 1236, 1240 (10th Cir. 2008); Kunkel,
866 F.2d at 1273. First, the case must be based on an “actual controversy,” a
requirement the Supreme Court has repeatedly equated to the Constitution’s case-orcontroversy requirement. Surefoot, 531 F.3d at 1240; see, e.g., Aetna Life Ins. Co. v.
Haworth, 300 U.S. 227, 239–40, 57 (1937) (“The Declaratory Judgment Act of 1934, in
its limitation to ‘cases of actual controversy,’ manifestly has regard to the constitutional

6

Mr. and Mrs. Turner filed separate Motions to Dismiss (Doc. ## 40, 51); however because their
motions are identical except for their respective names, the Court will review the two motions
together.
5

provision and is operative only in respect to controversies which are such in the
constitutional sense.”). “Second, even where a constitutionally cognizable controversy
exists, the Act stipulates only that district courts ‘may’—not ‘must’—make a declaration
on the merits of that controversy; accordingly, we have held that district courts are
entitled to consider a number of case-specific factors in deciding whether or not to
exercise their statutory declaratory judgment authority.” Surefoot, 531 F.3d at 1240;
State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d 979, 982–83 (10th Cir. 1994) (stating that
“the district court is not obliged to entertain every justiciable claim brought before it” and
setting out the factors that a district court should consider).
The subject matter jurisdiction of this Court is limited by Article III, § 2 of the
United States Constitution, which allows judicial consideration of “cases” or
“controversies.” Kunkel, 866 F.2d at 1273. Thus, a declaratory judgment action must
be “definite and concrete, touching the legal relations of parties having adverse legal
interests, must be real and substantial and admit of specific relief through a decree of a
conclusive character, as distinguished from an opinion advising what the law would be
upon a hypothetical state of facts.” Surefoot, 531 F.3d at 1244 (citing MedImmune, Inc.
v. Genentech, Inc., 549 U.S. 118, 127 (2007)) (internal quotation marks omitted). Thus,
“the question in each case is whether the facts alleged, under all the circumstances,
show that there is a substantial controversy, between parties having adverse legal
interests, of sufficient immediacy and reality to warrant the issuance of a declaratory
judgment.” MedImmune, 549 U.S. at 127.

6

The existence of a case or controversy is a matter of degree. Md. Cas. Co. v.
Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941). The test does not “draw the brightest of
lines between those declaratory judgment actions that satisfy the case-or-controversy
requirement and those that do not.” Id. The burden of establishing an actual case or
controversy is on the party seeking declaratory judgment. Cardinal Chem. v. Morton
Intl., 508 U.S. 83, 95 (1993).
2.

Analysis

In the instant case, the Nunn agreement between Plaintiffs and the Turners
divested the Turners of all rights, title, and interest they had to claims against American
Family for collection of the judgment entered in the State Litigation, including the rights
to prosecute those claims in a civil action and retain the proceeds from such an action.
American Family, as the party seeking declaratory judgment, has the burden of
establishing an actual case or controversy. American Family asserts four arguments as
to why the Court should deny the Turners’ Motions to Dismiss: (1) the subject matter of
the State Litigation is distinct from the subject matter in the instant case; (2) the Nunn
agreement did not assign to Plaintiffs the Turners’ right to rescind their homeowners
policy with American Family; (3) a declaratory judgment will implicate any other potential
claims related to foster care children that were in the Turners’ care; and (4) a
declaratory judgment may directly implicate the validity of the Nunn agreement. 7

7

The Court is perplexed that American Family’s argument is based on the legal standards
governing a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) rather than pursuant to Fed.
R. Civ. P. 12(b)(1), which the Turners rely upon. Nevertheless, the Court will address each
argument in turn.
7

American Family contends a declaratory judgment is proper because the subject
matter of the State Litigation is distinct from the subject matter in the instant case as in
this case, American Family seeks to void “the Turners’ policy in total, not just with
respect to this specific case.” American Family further explains, “[i]f the policy is held
void, [it] will have no obligation to defend or indemnify the Turners for any other claims
that occurred during the policy period.” However, the concurrence of these contingent
events, necessary for injury to be realized, is too speculative to warrant anticipatory
judicial determinations. Columbian Fin. Corp. v. BancInsure, Inc., 650 F.3d 1372, 1380
(10th Cir. 2011) (citing Eccles v. Peoples Bank, 333 U.S. 426, 432 (1948)). American
Family’s grievance—that other claims may occur with regard to the Turners during the
policy period—is too remote and too speculative in nature. In fact, American Family
uses words such as “may arise” and “should other claims arise” in its Response (Doc.
# 104), which further demonstrates that its arguments are too speculative to warrant
anticipatory judicial determinations. Therefore, American Family has failed to
demonstrate that a declaratory judgment is proper based on its first argument.
Next, American Family argues that the Nunn agreement did not assign to
Plaintiffs the Turners’ right to rescind their homeowners policy in total with American
Family; therefore, the Turners must be parties to the action. American Family alleges
that a declaration would collaterally estop the Turners from suing American Family
should any claims relating to the homeowners policy arise in the future. However,
potential claims that may arise in the future are too speculative to warrant a declaratory
judgment. As such, American Family has failed to demonstrate its need for the Court to
8

declare the policy void ab initio. Thus, this claim also fails to demonstrate that a
declaratory judgment is proper.
Third, American Family claims that a declaratory judgment will implicate any
other potential claims related to foster care children that were in the Turners’ care; and,
thus, the Turners are proper third-party defendants. This claim, however, is too remote
and speculative in nature. The only claim that relates to a foster care child in the
Turners’ care is based on the State Litigation. American Family’s premise—that other
potential claims related to foster care children may be implicated—is purely hypothetical
and lacks sufficient immediacy and reality to warrant the Court’s exercise of jurisdiction
over the Turners.
Lastly, American Family argues that this Court should declare the Turners’ policy
void because it would render the Nunn agreement meaningless. “[A] court in the
exercise of its discretion should declare the parties’ rights and obligations when the
[declaratory] judgment will (1) clarify or settle the legal relations in issue and (2)
terminate or afford relief from the uncertainty giving rise to the proceeding.” Kunkel, 866
F.2d at 1275. Even if this Court deems the Nunn agreement invalid, it will not clarify the
legal relationship between American Family and the Turners, nor would it terminate or
afford relief to American Family from the uncertainty surrounding its obligations
because, pursuant to the Nunn agreement, the Turners assigned all their rights, title,
and interest in their claims against American Family to Plaintiffs. Thus, if the Court
deems the Nunn agreement invalid, it would affect only Plaintiffs’ claims. Accordingly,

9

this Court, in its discretion, declines to declare the rights and obligations of American
Family as to the Turners.
Therefore, American Family has failed to establish an actual case or controversy
as to the Turners. Thus, the Turners’ renewed motion to dismiss is granted.
B.

SPECIAL KIDS SPECIAL FAMILIES, INC.
American Family requests a declaratory judgment and asserts a claim of

subrogation as to SKSF.
1.

Standard of Review

Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed due to
the plaintiff’s “failure to state a claim upon which relief can be granted.” A dismissal
under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the
absence of sufficient facts alleged under a cognizable legal theory. See id.; see also
Golan v. Ashcroft, 310 F.Supp.2d 1215, 1217 (D. Colo. 2004). The Rule 12(b)(6)
standard tests “the sufficiency of the allegations within the four corners of the complaint
after taking those allegations as true.” Mobley v. McCormick, 40 F.3d 337, 340 (10th
Cir. 1994).
Additionally, under Federal Rule of Civil Procedure 8(a)(2), a pleading must
contain a “short and plain statement of the claim showing that the pleader is entitled to
relief.” This pleading standard “does not require detailed factual allegations, but it
demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation. A
pleading that offers labels and conclusions or a formulaic recitation of the elements of a
cause of action will not do.” Ashcroft v. Iqbal, 556 U.S. 662, 677–78 (2009) (quoting
10

and citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotation
marks and citations omitted; alterations incorporated)).
Further, “only a complaint that states a plausible claim for relief survives a motion
to dismiss [under Rule 12(b)(6)]. Determining whether a complaint states a plausible
claim for relief will . . . be a context-specific task that requires the reviewing court to
draw on its judicial experience and common sense. But where the well-pleaded facts
do not permit the court to infer more than the mere possibility of misconduct, the
complaint has alleged—but it has not shown—that the pleader is entitled to relief.” Id. at
679 (quotation marks omitted).
The purpose of this pleading requirement is two-fold: “to ensure that a defendant
is placed on notice of his or her alleged misconduct sufficient to prepare an appropriate
defense, and to avoid ginning up the costly machinery associated with our civil
discovery regime on the basis of a largely groundless claim.” Kan. Penn Gaming, LLC
v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011) (internal quotation marks omitted).
2.

Analysis

SKSF asserts American Family’s claim fails pursuant to Fed. R. Civ. P. 12(b)(6)
because the Turners have no indemnity rights against SKSF. In agency law, “[a]
principal is vicariously liable for its agent’s acts committed within the scope of the
agency.” City of Aurora ex rel. Util. Enter. v. Colorado State Eng’r, 105 P.3d 595, 622
(Colo. 2005). However, “[t]his right [to indemnity] exists, for instance, where the
principal has directed an innocent agent to do an act which is tortious.” Premier
Members Fed. Credit Union v. Block, 2013 COA 128, ¶ 39, 312 P.3d 276, 281 (citing
11

Restatement (Second) of Agency § 438 cmt. B). A principal directs an innocent agent
to do an act which is tortious when the principal gives express orders or specially directs
his agent to commit the act. Marron v. Helmecke, 67 P.2d 1034, 1035 (Colo. 1937).
In the instant case, there are no facts that SKSF directed the Turners to engage
in a tortious act. Although American Family contends Plaintiffs “suffered as a result of
SKSF placing a child it suspected had a skull fracture with the Turners who it is alleged
SKSF did not provide with proper training or experience to care for such a child,” there
are no facts that suggest SKSF gave express orders or directed the Turners to commit
a tortious act, i.e., taking Plaintiff Giday to urgent care several hours after he “vomited,
stopped breathing, went limp, and became unresponsive.” Furthermore, judgment was
entered for the Plaintiffs in the amount of $12,583,543.34 against the Turners. Thus,
the Turners are not innocent agents. Therefore, the Turners have no right to indemnity
from SKSF to which American Family can become subrogated.
Lastly, because SKSF is not implicated in the lawsuit otherwise, 8 there is no case
or controversy between SKSF and American Family. Thus, the declaratory judgment
claim fails. Kunkel, 866 F.2d at 1273 (“Recognizing that under our Constitution the
federal judicial power extends only to “cases” or “controversies,” U.S. Const. Art. III, § 2,

8

American Family, in its Response (Doc. # 56), argues that its Third-Party Complaint alleges a plausible
claim for contribution against SKSF. However, American Family did not plead such a theory and is not
permitted to “amend its pleadings through its opposition to the motion to dismiss.” See, e.g., Smith v.
Pizza Hut, Inc., 694 F. Supp. 2d 1227, 1230 (D. Colo. 2010) (citing with approval Perkins v. Silverstein,
939 F.2d 463, 470 n.6 (7th Cir. 1991) (“a complaint may not be amended by briefs in opposition to a
motion to dismiss”)). Accord Kearney v. Dimanna, 195 Fed. App’x. 717, 721 n.2 (10th Cir. 2006)
(unpublished) (declining to consider claims not pleaded in complaint and quoting decision for proposition
that courts “are limited to assessing the legal sufficiency of the allegations contained within the four
corners of the complaint”).

12

Congress confined the declaratory remedy “to cases of actual controversy.”).
Therefore, SKSF’s renewed motion to dismiss is granted.
C.

GRANITE STATE AND NUFIC
American Family requests a declaratory judgment and asserts claims of

subrogation, contribution, and breach of covenant of good faith and fair dealing as to
Granite State and NUFIC.
1.

Standard of Review

Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed due to
the plaintiff’s “failure to state a claim upon which relief can be granted.” A dismissal
under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the
absence of sufficient facts alleged under a cognizable legal theory. See id.; see also
Golan v. Ashcroft, 310 F.Supp.2d 1215, 1217 (D. Colo. 2004). The Rule 12(b)(6)
standard tests “the sufficiency of the allegations within the four corners of the complaint
after taking those allegations as true.” Mobley v. McCormick, 40 F.3d 337, 340 (10th
Cir. 1994).
Additionally, under Federal Rule of Civil Procedure 8(a)(2), a pleading must
contain a “short and plain statement of the claim showing that the pleader is entitled to
relief.” This pleading standard “does not require detailed factual allegations, but it
demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation. A
pleading that offers labels and conclusions or a formulaic recitation of the elements of a
cause of action will not do.” Ashcroft v. Iqbal, 556 U.S. 662, 677–78 (2009) (quoting

13

and citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotation
marks and citations omitted; alterations incorporated)).
Further, “only a complaint that states a plausible claim for relief survives a motion
to dismiss [under Rule 12(b)(6)]. Determining whether a complaint states a plausible
claim for relief will . . . be a context-specific task that requires the reviewing court to
draw on its judicial experience and common sense. But where the well-pleaded facts
do not permit the court to infer more than the mere possibility of misconduct, the
complaint has alleged—but it has not shown—that the pleader is entitled to relief.” Id. at
679 (quotation marks omitted).
The purpose of this pleading requirement is two-fold: “to ensure that a defendant
is placed on notice of his or her alleged misconduct sufficient to prepare an appropriate
defense, and to avoid ginning up the costly machinery associated with our civil
discovery regime on the basis of a largely groundless claim.” Kan. Penn Gaming, LLC
v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011) (internal quotation marks omitted).
2.

Analysis
a.

Declaratory Judgment and Subrogation

To bring a declaratory judgment action against Granite State and NUFIC,
American Family must have standing to bring a declaratory judgment against SKSF’s
insurers. Farmers Ins. Exch. v. Dist. Court, 862 P.2d 944, 949 (Colo. 1993). A plaintiff
has no standing to bring a declaratory judgment against the insurance company unless
the insured becomes liable to pay. Id. at 948. Because the Court determined American

14

Family has no claims against SKSF, American Family cannot bring a declaratory
judgment action against Granite State and NUFIC.
Additionally, because American Family has no claims against SKSF, “no greater
right would accrue to their substitute,” i.e., subrogation does not extend to Granite State
and NUFIC. Hartford Acc. & Indem. Co. v. Colorado Nat. Bank, 40 P.2d 254, 256 (Colo.
1934); D.R. Horton, Inc.-Denver v. Travelers Indem. Co. of Am., 860 F. Supp. 2d 1246,
1253 (D. Colo. 2012) (citing United Fire Grp. v. Powers Electric, Inc., 240 P.3d 569, 573
(Colo. App. 2010)) (“Subrogation claims are derivative, meaning that a subrogee
insurer’s rights extend only as far as the rights of its insured.”).
b.

Breach of Good Faith

American Family also argues that an excess carrier may sue a primary carrier for
breach of good faith in two ways: (1) as subrogated to the rights of its insured; and (2) in
its own right for independent duties owed from the primary carrier to the excess carrier.
1)

Equitable Subrogation

American Family contends that through equitable subrogation it may enforce
duties of good faith that Granite State and NUFIC owed to the Turners.
“[E]quitable subrogation is an equitable principle that allows a party secondarily
liable who has paid the debt of the party who is primarily liable [to] institute a recovery
action in order to be made whole.” Cotter Corp. v. Am. Empire Surplus Lines Ins. Co.,
90 P.3d 814, 833 (Colo. 2004) (citation omitted). The Colorado Supreme Court has
outlined five factors as conditions precedent to the application of equitable subrogation:
(1) the subrogee made the payment to protect his or her own interest; (2)
the subrogee did not act as a volunteer; (3) the subrogee was not primarily
15

liable for the debt paid; (4) the subrogee paid off the entire encumbrance;
and (5) subrogation would not work any injustice to the rights of the junior
lienholder.
Hicks v. Londre, 125 P.3d 452, 456 (Colo. 2005). “In the insurance context, courts
generally apply the doctrine of equitable subrogation to allow an insurer, who has made
payment to its insured for a loss caused by a third party, to seek recovery from the third
party for such payment.” Cotter Corp., 90 P.3d at 833. “This prevents the insured from
being unjustly enriched by recovering from the insurer as well as the third party, and
prevents the third party from escaping its liability for the loss.” Id.
In the instant case, American Family does not allege that it has made any
payments to the Turners, its insureds. Thus, American Family cannot satisfy the first
condition precedent to the application of equitable subrogation. Because the Court has
determined that American Family has not met the first factor of the conditions precedent
as outlined by the Colorado Supreme Court, the Court need not address the additional
requirements to find a claim for equitable contribution. Thus, American Family may not
enforce a claim of equitable subrogation against Granite State and NUFIC.
2)

Direct Cause of Action

Next, American Family, as excess insurer to the Turners, alleges it has a bad
faith claim owed to it directly from Granite State and NUFIC, the primary insurers.
There is no controlling authority on whether Colorado recognizes a duty of good
faith owed by a primary insurer to an excess insurer. When the Colorado Supreme
Court has not yet addressed an issue, this Court must attempt to predict how that court
would decide the question. Blackhawk-Cent. City Sanitation Dist. v. Am. Guarantee &
16

Liab. Ins. Co., 214 F.3d 1183, 1188 (10th Cir. 2000). “In making this determination we
may look to other state court decisions, federal decisions, and the general trend and
weight of authority.” Commerce Bank, N.A. v. Chrysler Realty Corp., 244 F.3d 777, 780
(10th Cir. 2001) (citing Farmers Alliance Mut. Ins. Co. v. Salazar, 77 F.3d 1291, 1295
(10th Cir. 1996)).
In a similar case involving Oklahoma law, the Tenth Circuit determined that the
Oklahoma Supreme Court would conclude that “an excess insurer cannot assert a
direct cause of action against a primary insurer that alleges the primary insurer owed
the excess insurer an implied duty of good faith and fair dealing.” Steadfast Ins. Co. v.
Agric. Ins. Co., 548 F. App’x 544, 546 (10th Cir. 2013). In reaching this conclusion, the
Tenth Circuit noted that such an outcome is consistent with the position of the majority
of courts in other jurisdictions. 9 Id. Further, a division of this court observed, “the
national trend and weight of authority do not recognize a direct duty running from the
primary to the excess insurer.” Okland Const. Co. v. Phoenix Ins. Co., No. 11-CV02652, 2013 WL 3866608, at *6 (D. Colo. July 26, 2013) (citing PHICO Ins. Co. v. Aetna
Casualty & Surety Co. of Amer., 93 F. Supp. 2d 982, 989 (S.D. Ind. 2000) (citing few
9

See Twin City Fire Ins. Co. v. Country Mut. Ins. Co., 23 F.3d 1175, 1178 (7th Cir. 1994) (noting
that just a “handful of cases from New York and New Jersey” “hint” that a primary insurer owes
an excess insurer a duty of care, while “the overwhelming majority of American cases describe
the duty that a primary insurer owes an excess insurer as one derivative from the primary
insurer’s duty to the insured,” citing cases); Truck Ins. Exch. of Farmers Ins. Grp. v. Century
Indem. Co., 887 P.2d 455, 460 (Wash. Ct. App. 1995) (“While most courts have adopted the
theory of equitable subrogation, only a minority have found the primary insurer owes a direct
duty of good faith to the excess insurer.”); 28 Am.Jur. Proof of Facts 3d 507 § 14 (2011) (noting
that, while “[i]n a few jurisdictions, an excess insurer may directly pursue an action against a
primary insurer for a breach of a duty owed to the excess insurer, . . . [m]ost courts that have
been asked to determine if there is a direct duty of a primary insurer to an excess insurer (or a
direct cause of action) have rejected the idea that there is such a duty”).
17

cases suggesting primary insurer owes direct duty of care to excess insurer, but noting
that majority of jurisdictions define duty as derivative of that owed to the insured)).
The only case cited by American Family concerning this claim is Hawkeye-Sec.
Ins. Co. v. Indem. Ins. Co. of N. Am., 260 F.2d 361 (10th Cir. 1958). However, in
Hawkeye-Security Insurance Co., the court ruled that an insurance company can be
held liable for failing to appeal only in instances of fraud or bad faith. See Telecom Italia
S.p.A. v. L-3 Commc’ns Corp., 335 F. App’x 770, 773 (10th Cir. 2009) (citing HawkeyeSecurity Insurance Co. to confirm that “[i]t has long been the law of this circuit that an
attorney employed to engage in litigation has no right to prosecute an appeal”). Thus,
Hawkeye-Sec. Ins. Co. is distinguishable.
For the foregoing reasons, the Court concludes that the Colorado Supreme Court
would apply similar reasoning to the circumstances presented here to preclude
American Family from suing Granite State and NUFIC on a claim alleging that Granite
State and NUFIC directly owed it a duty of good faith and fair dealing.
c.

Contribution

Lastly, American Family argues it has an equitable and statutory contribution
claim against Granite State and NUFIC.
1) Statutory Contribution
In this case, American Family has no right to seek statutory contribution from
Granite State and NUFIC. Under Colorado law, statutory contribution is unavailable
against a tortfeasor who settles with a plaintiff:
When a release or a covenant not to sue or not to enforce judgment is
given in good faith to one or two or more persons liable in tort for the same
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injury or the same wrongful death: It discharges the tortfeasor to whom it
is given from all liability for contribution to any other tortfeasor.
Colo. Rev. Stat. § 13-50.5-105(1)(a). In the Settlement Agreement between Plaintiffs,
SKSF, Granite State, and NUFIC, it states:
Plaintiffs hereby completely release and forever discharge [SKSF] and
Insurers from any and all past, present, and future claims, demands,
obligations, actions, causes of action, rights, damages, costs, losses of
services, expenses, and compensations of any nature whatsoever,
whether based on a tort, contract, or other theory of recovery, which the
Plaintiffs now have, or which Plaintiffs may hereafter accrue or otherwise
be acquired, on account of, or may in any way grow out of, or which are
the subject of the Complaint (and all related pleadings) including, without
limitation, any and all known or unknown claims for bodily, personal, and
economic injuries to Plaintiffs which have resulted or may result from the
alleged acts or omissions of the Defendant.
(Doc. # 83-1). The Agreement defines “Insurers” as Granite State and NUFIC.
In this case, American Family has not sufficiently alleged that Granite State and
NUFIC settled with Plaintiffs in anything other than good faith. American Family’s
argument—that “Plaintiffs bring this action via an assignment of rights from the
Turners . . . [t]herefore whether or not the Giday Plaintiffs agreed (in their own name) to
release Granite State and [NUFIC] is irrelevant”—is unconvincing. The Settlement
Agreement specifically states Plaintiffs completely released Granite State and NUFIC
from any claims they may have acquired. Plaintiffs acquired the right to sue American
Family from the Turners; and this acquired right stems from the State Litigation. Thus,
American Family is not entitled to statutory contribution from Granite State or NUFIC.
Brochner v. W. Ins. Co., 724 P.2d 1293, 1299 (Colo. 1986).

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2)

Equitable Contribution

American Family similarly fails in its claim for equitable contribution against
Granite State and NUFIC.
“Equitable contribution is recognized under Colorado law and is a means of
apportioning a loss between two or more insurers who cover the same risk so that each
insurer pays its fair share of the common obligation.” Cont’l W. Ins. Co. v. Colony Ins.
Co., No. 13-CV-01425, 2014 WL 4695100, at *6 (D. Colo. Sept. 19, 2014). Granting
equitable remedies lies within the discretion of the trial court. La Plata Med. Ctr.
Associates, Ltd. v. United Bank of Durango, 857 P.2d 410, 420 (Colo. 1993) (citing
Restatement (Second) of Contracts § 357 cmt. c (1981)). Generally, equitable
contribution is available to an insurer who paid the insured and then seeks equitable
contribution from any co-insurers owning the same duty to defend. See, e.g., Cont’l W.
Ins. Co., 2014 WL 4695100, at *6 (finding insurer entitled to equitable contribution from
another insurer who breached its duty to defend when the former provides a complete
defense to an insured against a common risk); Allstate Ins. Co. v. W. Am. Ins. Co., No.
09-CV-00967, 2011 WL 11065655, at *3 (D. Colo. Nov. 21, 2011) (stating there is
potentially a claim for equitable contribution when an insurer settled all claims against its
insureds and those claims triggered coverage by another insurer); Nat’l Cas. Co. v.
Great Sw. Fire Ins. Co., 833 P.2d 741, 748 (Colo. 1992) (insurer is entitled to equitable
contribution for defense costs and settlement payment when another insurer had
concurrent coverage). Without equitable contribution, an insurer could be rewarded for

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refusing to honor its contractual obligation to its insured. Allstate Ins. Co., 2011 WL
11065655, at *3.
In the instant case, American Family, the insurer who failed to defend its insureds
in the State Litigation, is requesting equitable contribution from Granite State and
NUFIC, insurers who provided a defense to its insureds in the State Litigation. There
appears to be little equitable reason now for shifting to Granite State and NUFIC a pro
rata share of American Family’s liability when American Family could have participated
in the State Litigation and Settlement Agreement between Plaintiffs and its insureds. 10
Rewarding equitable contribution to American Family would award it for refusing to
defend its insured in the State Litigation. Indeed, under all the circumstances of this
case, the Court does not believe that American Family is in any position to invoke equity
in order to obtain contribution to Plaintiffs’ claims.
III.

CONCLUSION

Accordingly, it is ORDERED that Glenn and Veronica Turner’s Renewed Motion
to Dismiss (Doc. # 95) is GRANTED. It is
FURTHER ORDERED that Special Kids Special Families, Inc.’s Renewed
Motion to Dismiss (Doc. # 71) is GRANTED. It is

10

This case is unlike D.R. Horton, Inc.–Denver v. Travelers Indemnity Co. of America, No. 10–
CV–02826, 2012 WL 5363370 (D. Colo. Oct. 31, 2012), which American Family cites, because
in this case the co-insurers to American Family—Granite State and NUFIC—actually defended
its insured in the State Litigation and settled with Plaintiffs concerning their claims stemming
from the State Litigation. If anything, D.R. Horton, Inc.–Denver potentially supports a claim that
Granite State and NUFIC could seek equitable contribution from American Family, but not the
other way around.
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FURTHER ORDERED that Granite State Insurance Company and National
Union Fire Insurance Company of Pittsburgh’s Motion to Dismiss (Doc. # 83) is
GRANTED. American Family’s Third-Party Complaint is DISMISSED IN ITS
ENTIRETY. It is
FURTHER ORDERED that, pursuant to Fed. R. Civ. P. 54(d)(1), Third-Party
Defendants shall have their costs by filing a Bill of Costs with the Clerk of the Court
within ten days of the entry of judgment. Finally, it is
FURTHER ORDERED that American Family Mutual Insurance Company’s
“Motion to Compel Third Party Defendant Granite State Insurance Company to Produce
Its Claim File For In Camera Review and Production And Request for Expedited Ruling”
(Doc. # 137), “Motion to Compel Veronica Turner and Glen Turner to Produce
Communications with Tiffaney Norton” (Doc. # 148), and Granite State Insurance
Company and National Union Fire Insurance Company of Pittsburgh “Unopposed
MOTION to Amend/Correct/Modify Scheduling Order” (Doc. # 173) are DENIED AS
MOOT.
DATED: March

31

, 2015
BY THE COURT:

_______________________________
CHRISTINE M. ARGUELLO
United States District Judge

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