Hansen Construction Inc. et al v. Everest National Insurance Company
Filing
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ORDER Denying Defendant's 68 Motion for Summary Judgment. By Judge Christine M. Arguello on 06/01/2018. (athom, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 16-cv-02902-CMA-GPG
HANSEN CONSTRUCTION INC., and
STEVEN A. HANSEN,
Plaintiffs,
v.
EVEREST NATIONAL INSURANCE COMPANY,
Defendant.
ORDER DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on Defendant Everest National Insurance
Company’s Motion for Summary Judgment. (Doc. # 68.) Because genuine issues of
material fact govern this dispute, the Court denies Defendant’s motion.
I.
BACKGROUND
A. THE UNDERLYING LITIGATION
This lawsuit stems from an underlying construction defect lawsuit (the
“Underlying Litigation”) involving twenty single-family homes constructed between 2005
and 2007 in the Ironbridge Homes project in Glenwood Springs, Colorado. (Doc. ## 4
at 2; 72 at 5.) Plaintiffs Hansen Construction, Inc. and Steven Hansen (collectively,
“Plaintiffs”) were among the defendants in the Underlying Litigation, wherein
homeowners sought to recover for property damage allegedly caused by construction
defects and soil movement. (Doc. ## 68 at 2; 72 at 5, 9–10.) The Underlying Litigation
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culminated in an arbitration hearing in January and February 2015 (Doc. # 4 at 4),
following which the arbiter found all defendants jointly and severally liable for property
damage to the homes and entered an award against them in excess of $9 million. (Id.
at 4.) Plaintiff Steve Hansen satisfied the judgment on behalf of all arbitration
defendants by paying $9,218,911.60 in October 2015. (Id.)
B. INSURANCE COVERAGE
As pertinent here, Plaintiffs were issued two primary commercial general liability
insurance policies by Maxum Indemnity Company during the relevant time period: a
2006–2007 policy (the “2006 Maxum Policy”) and a 2007–2008 policy (the “2007
Maxum Policy”). (Doc. # 68 at 2.) Each policy had a $1 million per “occurrence” limit
and a $2 million aggregate limit. (Id.) Defendant Everest National Insurance Company
(“Everest”) issued Plaintiffs a single excess liability insurance policy, which provided
excess coverage to the 2007 Maxum Policy; Plaintiffs did not have an excess coverage
policy with Everest under the 2006 Maxum Policy. (Id. at 2–3.)
With respect to the Underlying Litigation, Maxum initially denied Plaintiffs
coverage under the 2007 Maxum Policy but agreed to defend under the 2006 Maxum
Policy. (Doc. # 72 at 3.) Everest likewise denied excess coverage for the 2007 term
because a threshold requirement to Everest’s excess coverage obligations was the
exhaustion of the 2007 Maxum Policy. (Doc. # 68 at 2–3.) In April 2014, however,
Maxum revoked its denial under the 2007 Maxum Policy. (Doc. ## 72-30 at 1–15; 7229 at 157.) Maxum then informed Everest that it was no longer denying coverage;
Everest nonetheless maintained its denial. (Doc. ## 72-30 at 61; 72-29 at 131.)
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Maxum essentially represented Plaintiffs throughout the Underlying Litigation,
subject to a full and complete reservation of rights, and incurred over $600,000 in
defense costs and attorney’s fees. (Doc. ## 72 at 3; 72-31 at 132, ¶ 57; 72-30 at 1.)
Following arbitration, Maxum sued Plaintiffs to avoid coverage for the Underlying
Litigation, arguing that Maxum did not owe a duty to defend or indemnify Plaintiffs under
either Maxum Policy. (Doc. # 72-31 at 125–37.) Plaintiffs asserted counterclaims for
breach of contract, declaratory judgment, and bad faith. (Doc. # 68 at 10.) Maxum and
Plaintiffs settled that litigation in March 2016. (Doc. # 70-29 at 157–63.) Pursuant to
that settlement, Maxum paid Plaintiffs $500,000 and the parties stipulated that “payment
of the [$500,000] sum, combined with payments made and/or to be made by Maxum in
connection with the . . . Underlying [Litigation] . . . has exhausted [the] single peroccurrence limit under the [2007] Maxim Policy.” (Id. at 158.) To effectuate the
exhaustion of $1 million single occurrence limit, Maxum reallocated costs between the
2006 and 2007 Maxum Policies. (Doc. ## 72 at 3; 72-29 at 176–77.)
Following the settlement, Plaintiffs informed Everest that the 2007 Maxum Policy
had been exhausted. (Doc. # 72-29 at 174–75.) Plaintiffs requested that Everest
reconsider of its previous denial of coverage and issue excess coverage to Plaintiffs to
cover the $9,218,911.60 judgment against them. (Id.) This request followed two of
Plaintiffs’ previous requests for reconsideration: one in November 2015 and another in
April 2016. (Id. at 174.) In all instances, Everest effectively refused to defend or
indemnify Plaintiffs in the Underlying Litigation. (Doc. # 4 at 5.)
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C. THIS LAWSUIT
Plaintiff thereafter initiated this lawsuit against Everest in October 2016, bringing
claims for breach of contract, common law bad faith, and statutory bad faith. (Doc. # 4
at 5–6.) Plaintiffs also seek a declaratory judgment clarifying the rights and obligations
of the parties. (Id. at 5, 8.) On December 21, 2017, Everest filed the instant Motion for
Summary Judgment, arguing for the dismissal of all Plaintiffs’ claims. (Doc. # 68.)
II.
EVEREST’S MOTION FOR SUMMARY JUDGMENT
A. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate if the moving party demonstrates that there is
no genuine dispute as to any material fact and that it is entitled to a judgment as a
matter of law. Fed. R. Civ. P. 56(a). Stated differently, “summary judgment cannot be
granted unless the evidence is so clear that there is no genuine factual issue.” Williams
v. Borden, Inc., 637 F.2d 731, 738 (10th Cir. 1980). In applying this standard, the Court
views the evidence and all reasonable inferences therefrom in the light most favorable
to the nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir.
1998) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587
(1986)). A fact is material if, under the applicable substantive law, it is essential to the
proper disposition of the claim. Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986)). A dispute of fact is genuine if there is sufficient evidence on each side so
that a rational trier of fact could resolve the issue either way. Id. (citing Anderson, 477
U.S. at 248). Determinations of an insurance company’s duty to defend or indemnify
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are largely questions of fact. Cypris Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d
294, 301–02 (Colo. 2003).
B. ANALYSIS
Everest requests that this Court grant summary judgment on all of Plaintiff’s
claims, arguing primarily as follows:
1. The damages awarded in the Underlying Litigation do not fall within the scope
of the Everest Policy because they are excluded by the subsidence exclusion
and because they occurred before the subsidence exclusion was amended;
2. Even if the damages were within the scope of the Everest policy, Plaintiffs are
not entitled to recover all $9,218,911.60 under the Everest policy because the
total damages should be allocated between successive insurance carriers on
a time-on-risk basis, i.e. Plaintiffs should not be permitted to “pick and
choose” Everest as liable for the entire sum when the damage is also
attributable to other insurance providers;
3. Plaintiffs cannot satisfy their burden of proving exhaustion of the 2007 Maxum
Policy—a prerequisite to obtaining excess Everest coverage—because a $2
million limit, not a $1 million limit, is required and the settlement between
Plaintiffs and Maxum was collusive; and
4. Plaintiffs’ common law and statutory bad faith claims fail as a matter of law
because no coverage was required under the Everest policy and because
they are barred by the applicable statute of limitations.
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Plaintiffs respond by highlighting genuinely disputed material facts precluding the
grant of summary judgment with respect to each of these arguments. The Court agrees
with Plaintiffs that material factual issues preclude summary judgment in this case.
Specifically, Everest’s first two arguments—the applicability of the subsidence
exclusion and a time-on-risk damage allocation—depend heavily on the timing of the
property damage in the Underlying Litigation and its cause. Everest highlights soil
movement issues that occurred in spring 2006, before the Everest policy went into
effect and also before the subsidence exclusion was amended; yet, Everest also
contends that the property damage was continuous and progressive. Plaintiffs cite
evidence demonstrating that the issues occurred during the Everest policy period and
that the damage was gradual and long-term, affecting some homes much later than
others, even occurring well into 2007. The arbiter in the Underlying Litigation did not
make findings about when or precisely how the homes were damaged. Because there
is evidence before the Court to support either party’s argument and a reasonable juror
could find either way, summary judgment is not appropriate. See Williams, 637 F.2d at
738 (“[S]ummary judgment cannot be granted unless the evidence is so clear that there
is no genuine factual issue and the determinations can be made as a matter of law.”).
Everest’s third argument—whether the 2007 Maxum Policy was properly
exhausted—also depends on disputed material issues, including whether one
occurrence (resulting in a $1 million exhaustion limit) or multiple occurrences ($2 million
exhaustion limit) caused the property damage at issue in the Underlying Litigation. See
Business Interiors, Inc. v. Aetna Casualty and Surety Co., 751 F.2d 361, 363 (10th Cir.
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1984) (“[A]n occurrence is determined by the cause or causes of the resulting injury.”);
see also Hoang v. Monterra Homes (Powderhorn) LLC, 129 P.3d 1028, 1034 (Colo.
App. 2005), rev’d on other grounds sub nom. Hoang v. Assurance Co. of Am., 149 P.3d
798 (Colo. 2007) (“The term ‘occurrence’ is to be broadly construed against the
insurer.”). Everest argues that there were multiple occurrences in this case, including
the shallow construction of the homes’ foundations, improper grading and landscaping,
failure to install storm water infrastructure, and multiple sources of water infiltration.
Plaintiffs, on the other hand, contend that there was only one cause of damage to all the
homes—“the collapse of soils caused by water.” Each party cites to case law and
expert affidavits supporting their position. See Hoang v. Assurance Co. of Am., 149
P.3d 798, 802 (Colo. 2007), as modified (Mar. 5, 2007) (“A long term exposure to a
harmful condition that results in damage or injury may be an occurrence.”); U.E. Texas
One-Barrington, Ltd. v. Gen. Star Indem. Co., 332 F.3d 274, 278 (5th Cir. 2003)
(discussing how various leaks may constitute separate occurrences). Again, the arbiter
made no findings with respect to the number of occurrences or causes of property
damage in this case, and this Court is without sufficient evidence to resolve this dispute
as a matter of law. Moreover, Everest’s allegation that Maxum and Plaintiff’s settlement
and subsequent reallocation of funds was collusive creates a factual dispute properly
left for resolution by a jury at trial. See Nunn v. Mid-Century Ins. Co., 244 P.3d 116, 123
(Colo. 2010), as modified on denial of reh’g (Jan. 10, 2011) (“[T]he mere specter of
fraud or collusion need not render all stipulated judgments unenforceable against an
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insurer, because the existence of fraud or collusion can be determined at trial like any
other issue of fact.”).
Finally, with respect to Everest’s timeliness concerns, the parties genuinely
dispute the date on which the statute of limitations began to run on the bad faith claims
in this case. Claims for common law and statutory bad faith accrue when the insured
knows or should have known of both its injury and cause. Colo. Rev. Stat. § 13-80108(1); Wardcraft Homes, Inc. v. Employers Mut. Cas. Co., 70 F.Supp.3d 1198, 1212 (D.
Colo. 2014). Plaintiffs’ bad faith claims are based on Plaintiffs’ allegations that Everest
(1) breached its duty of good faith and fair dealing by, among other things, failing to
defend or indemnify Plaintiffs, and (2) unreasonably delayed or denied Plaintiffs’ claims
without a reasonable basis for doing so. Everest argues that Plaintiffs “should have
known” about these injuries on November 18, 2010—the date that Everest first denied
coverage. Plaintiffs, however, contend that they could not have known about the injury
giving rise to their bad faith claims until late spring 2016, after Plaintiffs settled with
Maxum, exhausted the Maxum policy, and retendered their claim to Everest, which then
denied it. The Court cannot resolve this disputed factual averment as a matter of law.
Indeed, it is unclear from the record whether Plaintiffs should have known that Everest’s
initial denial would not change throughout the course of the Underlying Litigation;
although Everest appears to have been firm in its decision, Maxum’s revocation of its
previous denial, settlement with Plaintiffs, and subsequent policy exhaustion may have
caused Plaintiffs to reasonably believe that Everest, too, would reconsider. That
Everest did not reconsider does not mean, as a matter of law, that the limitations period
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began running at the initial denial. “It is settled law in the majority of circuits that the
issue of when a plaintiff knew or with reasonable diligence should have known of a
cause of action is a question of fact for the jury.” Williams v. Borden, Inc., 637 F.2d 731,
738 (10th Cir. 1980). Because this Court is not convinced that the record, viewed in the
light most favorable to Plaintiffs, demonstrates conclusively when Plaintiffs knew or
should have known about the cause and injury giving rise to its bad faith claims,
summary judgment cannot be granted.
III.
CONCLUSION
Accordingly, the Court denies Defendant’s Motion for Summary Judgment. (Doc.
# 68.)
DATED: June 1, 2018
BY THE COURT:
CHRISTINE M. ARGUELLO
United States District Judge
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