In Acuity v. Kinsale Insurance Company, 750 F. Supp. 3d 1229 (D. Colo. 2024), the United States District Court for the District of Colorado addressed the duties and rights of multiple insurers that issued commercial general liability (“CGL”) policies to the same insured. The decision clarifies how subrogation and contribution apply when one carrier funds a settlement and another refuses to participate.
Background
Phipps Construction Company served as the general contractor for the construction of a retirement community in Lakewood, Colorado. Phipps subcontracted the stucco work to Monarch Stucco, Inc. When the project owner, BMSH I Lakewood CO LLC, alleged construction defects, it brought an arbitration action against Phipps. Phipps in turn filed a third-party claim against Monarch, alleging defective and cracking stucco on fifteen buildings.
Three carriers insured Monarch during the relevant periods. Acuity insured Monarch from September 12, 2016, to September 5, 2018. National Specialty Insurance Company provided coverage from September 5, 2018, to September 5, 2020. Kinsale Insurance Company issued a policy from September 5, 2020, to September 5, 2022. Because Phipps’ claims spanned all three periods, the insurers were co-indemnitors for the same insured.
At an August 9, 2023, settlement conference, Kinsale declined to contribute to the settlement with Phipps. Acuity and National funded the settlement and then sought reimbursement from Kinsale. Acuity filed suit asserting claims for contribution, breach of contract, common law bad faith, statutory bad faith, and declaratory relief.
Court’s Analysis
- Breach of Contract
Kinsale argued that Acuity lacked privity and therefore could not enforce Kinsale’s policy with Monarch. The Court disagreed, holding that Acuity was subrogated to Monarch’s breach of contract rights because subrogation “allows a party without privity, who paid a debt owed by the debtor, to be substituted for the party with privity and to whom the debt is owed.” See Zurich American Insurance Co. v. Dillon Companies, LLC, 595 F. Supp. 3d 1006, 1006 (D. Colo. 2022). The Court also found that the breach of contract claim was distinct from the contribution claim because the former arose from Kinsale’s contractual duty to Monarch, while the latter arose from Kinsale’s equitable duty to Acuity. The Court therefore denied Kinsale’s motion to dismiss the breach of contract claim.
- Common Law Bad Faith
Acuity alleged that Kinsale acted in bad faith during claim handling and settlement negotiations. The Court held that Kinsale’s duty of good faith and fair dealing extended only to its insured, Monarch, and not to a co-insurer. Because Acuity was not a third-party beneficiary of Kinsale’s policy, the Court dismissed this claim.
- Statutory Bad Faith
Acuity also asserted a claim under Colorado’s bad faith statute, C.R.S. § 10-3-1115(1)(a). Acuity argued that it qualified as an assignee or third-party beneficiary of Monarch’s rights. The Court rejected this position, holding that only a first-party claimant may bring such a statutory claim. The Court therefore dismissed Acuity’s statutory bad faith claim.
- Declaratory Judgment
Finally, the Court declined to issue a declaratory judgment because Acuity’s right to contribution would necessarily be resolved through its other claims. The Court granted Kinsale’s motion to dismiss this claim.
Key Takeaways
The Acuity decision provides useful guidance for insurers sharing risk on construction projects.
- Subrogation versus Assignment
Under Colorado law, “transfer of rights” language in a CGL policy functions as a subrogation clause rather than an assignment of rights. Subrogation occurs only after payment and substitutes the paying insurer for the insured to the extent of the payment. Assignment, in contrast, transfers the entire cause of action. See 16 Couch on Insurance § 222:53. “Subrogation allows a party without privity, but who has paid the debt owed by the debtor, to be substituted for the party with privity and to whom the debt is owed.” Zurich American Insurance Co. v. Dillon Companies, LLC, 595 F. Supp. 3d at 1006.
- Good Faith Obligations
A CGL insurer for a construction subcontractor does not owe a common law duty of good faith to another insurer that issued a CGL policy to the same insured for a different policy period. Duties of good faith and fair dealing run between an insurer and its insured, not between co-carriers.
Conclusion
Acuity v. Kinsale underscores that Colorado courts will distinguish carefully between contractual, equitable, and statutory theories in multi-insurer disputes. Insurers that settle on behalf of a shared insured may pursue contribution and subrogation claims, but they cannot extend the implied covenant of good faith beyond the insurer-insured relationship. The decision reinforces the importance of coordinating defense and indemnity obligations among co-carriers early in construction defect claims to avoid later disputes over contribution and reimbursement.