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KF-103 v. American Family Mutual Insurance: An Exception to the Four Corners Rule
In Colorado, the “complaint rule,” also known as the “four corners rule,” requires an insurer to provide a defense when an underlying complaint alleges any set of facts that may fall within an insurance policy. This can result in a situation where an insurer has a duty to defend although the underlying facts ultimately do not fall within the policy.
In KF-103 v. American Family Mutual Insurance, 2014 WL 4409876, District Court Judge Richard P. Matsch recognized an exception to the complaint rule. In doing so, Judge Matsch determined that a court may look beyond the complaint to judicial orders preceding the filing of the complaint to determine whether an insurer has a duty to defend. Therefore, a party may not be able to assert unsupported facts in a complaint for the sole purpose of triggering an insurance policy.
KF 103 v. American Family arose out of an underlying easement dispute. In the underlying case, KF 103-CV, LLC (“KF 103”) purchased a piece of property from the Infinity Group. As a condition of the purchase agreement, Infinity Group was required to complete improvements to boundary streets and the intersection of Ski Lane and Sorpresa Lane. Several adjoining property owners (the “neighbors”) objected to the modification of the intersection because it violated an express easement (the “easement”) that provided access to their properties.
On October 13, 2010, the district court judge issued oral rulings and findings, holding that the neighbors’ easement had been impaired by the modification of the intersection and that KF 103 had not sought to relocate the easement. The Court found that KF 103 acted intentionally, although not with malice, and in direct violation of Colorado common law. In October 2012, the Court ruled in favor of the neighbors on claims for trespass, civil conspiracy, and negligence, awarding damages accordingly.
During the relevant time period, American Family insured KF 103. KF 103 first notified American Family of the underlying easement dispute in January 2011. American Family denied KF 103’s initial request for coverage and subsequent requests claiming that the neighbors’ claims were all based on KF 103’s intentional conduct, which was not covered under its policy. On September 10, 2013, KF 103 sued American Family seeking declaratory relief and damages. KF 103 asserted that the factual allegation in the neighbors’ negligence, negligent misrepresentation, and trespass claims triggered coverage under the complaint rule.
The Court found that the neighbors’ claims all involved intentional conduct on the part of KF 103. The fact that claims alleged by the neighbors’ were categorized as “negligent” and used such terms as “negligence,” “negligent failure,” and “legal duty” did not change the fact that the well-pleaded allegations were really claims arising out of KF 103’s intentional actions. Even if those facts pleaded unintentional actions, the Court already found that KF 103 knowingly violated the neighbors’ easement rights.
KF 103 argued that the complaint rule prevents the Court from considering earlier rulings and that the Court must rely on the claims as pleaded, therefore American Family owed KF 103 a defense. The Court disagreed with KF 103, finding that it may consider its earlier rulings because they preceded the filing of the claims and do not undercut the purpose of the complaint rule. If the Court were to agree with KF 103’s argument, it would allow any plaintiff to merely recite language in a complaint that would trigger insurance coverage.
While the complaint rule is still the general rule, a court may look outside the four corners of a complaint when there have been prior judicial determinations. It is important when determining the extent of insurance coverage to consider whether any prior court rulings have been issued in the case and how they may contradict the claims or counterclaims asserted.