An issue that has plagued builders in Colorado construction defect litigation is the difficulty of getting additional insured carriers to fully participate in the builder’s defense, oftentimes leaving the builder to fund its own defense during the course of the litigation.
Recent orders in two, currently ongoing, U.S. District Court cases provide clarity on the duty to defend in Colorado, holding that multiple insurers’ duty to defend is joint and several. The insured does not have to go without a defense while the various insurers argue amongst themselves as to which insurer pays what share.
The first issue before Judge Jackson was whether or not DRH was a “first party claimant” under C.R.S. § 10-3-1115 and entitled to benefits owed directly to it under an insurance policy. Mountain States argued that since the underlying litigation arose from claims against DRH, that DRH was not a “first party claimant.” The Court disagreed, and held that the policies entitled DRH to the benefits of a defense. Therefore, as a “first party claimant,” DRH was able to maintain an action against the insurers under C.R.S. § 10-3-1116, arising from an unreasonable delay or denial of a claim, and could seek recovery of reasonable attorney fees, court costs, and two times the covered benefit.
DRH also sought a ruling as to whether the multiple accepting insurance carriers each had joint and several duties to defend. The U.S. District Court held in favor of DRH, stating, “the allocation of defense costs is a matter to be worked out among the insurers and, if they cannot do so, then by a court. The insured does not have to go without a defense or fund its own defense while the insurers argue amongst themselves.”
Judge Jackson cited an order in the similar matter of D.R. Horton, Inc. – Denver, et al. v. Travelers Indem. Co. of America, et al.,Civil Action No. 10-CV-02826, 2012 WL 5363370 (D. Colorado). That case, now settled, also involved litigation between DRH, an insurance carrier, and several subcontractors that had agreed to obtain additional insured coverage for DRH. There, the Honorable William J. Martinez issued an order on October 31, 2012, concerning numerous dispositive motions. Both DRH and Travelers moved for summary judgment on the issue of whether an insurer’s duty to provide a defense is a joint and several obligation. Judge Martinez stated that while Colorado courts have not affirmatively resolved this issue, sufficient authority indicates that the Colorado Supreme Court, “would hold that each liability insurer has a duty to provide a complete defense, such that a liability insurer who breaches this duty can be found liable for the entire amount of defense fees and costs (and that insurer can then seek equitable contribution from any co-insurer).” The Court granted DRH’s motion with respect to joint and several liability, holding that DRH was entitled to recover from Travelers its full, uncollected defense fees and costs.
Judge Martinez’s order also discusses the majority view in other jurisdictions, which holds that the duty of an insurer to defend extends to a defense of the entire case, and that each of multiple insurers is severally liable to the insured for the entire cost of the defense. These recent U.S. District Court orders clarify that the law in Colorado follows the majority view.
For additional information regarding this or any construction law issues in Colorado, you can reach Bret Cogdill by e-mail at Cogdill@hhmrlaw.com or by telephone at (303) 653-0046.