When multiple insurers potentially owe coverage for the same construction defect claim, can one insurer force another to participate in the defense or indemnification of their common insured? If the other insurer refuses, what remedies are available?
As is often the case in insurance coverage litigation, the answer depends on precisely what claim is being asserted, whose rights are being enforced, and when the claim is brought.
In our earlier article, Acuity v. Kinsale Insurance Company: Co-Carrier Obligations and Subrogation under Colorado Law, we examined the United States District Court for the District of Colorado’s decision in Acuity v. Kinsale Insurance Company, 750 F. Supp. 3d 1229 (D. Colo. 2024). That decision addressed the circumstances under which an insurer that funded a construction defect settlement could pursue another insurer for equitable contribution, contractual subrogation, and alleged bad-faith conduct.
A subsequent decision arising from the same underlying litigation adds an interesting wrinkle.
In Gerald D. Phipps, Inc. v. Acuity, 2025 WL 864231 (D. Colo. Feb. 11, 2025), Judge Gordon P. Gallagher dismissed Acuity’s third-party claims against Kinsale, concluding that Acuity could not enforce Kinsale’s insurance contract merely because the insurers potentially shared obligations to the same insured.
At first glance, the decisions might appear inconsistent. In the earlier case, Acuity was permitted to pursue certain claims against Kinsale. In the later case, its claims were dismissed.
But the decisions are not necessarily contradictory. Rather, they illustrate several important distinctions under Colorado insurance law, distinctions that can determine whether a co-insurer’s claim survives a motion to dismiss.
The Same Construction Project, the Same Insurers, but Different Claims
Both decisions arise from construction defect allegations involving GH Phipps Construction Company, the general contractor on a retirement community project in Lakewood, Colorado.
Phipps subcontracted stucco work to Monarch Stucco, Inc. Following allegations of defective construction, disputes arose over the obligations of the insurers that provided coverage to Monarch during potentially applicable policy periods.
In the litigation addressed by the 2024 decision, Acuity and another insurer had funded a settlement involving Monarch. Kinsale declined to participate, prompting Acuity to pursue several theories of recovery.
The court’s analysis distinguished between an insurer’s independent equitable contribution rights and its ability, through subrogation, to enforce the contractual rights of its insured.
The February 2025 decision arose in a different procedural posture.
Phipps had sued several of its subcontractors’ insurers, contending that it qualified as an additional insured under their policies and was entitled to defense and indemnification in an underlying construction defect arbitration.
Phipps did not sue Kinsale.
Acuity attempted to bring Kinsale into the lawsuit through a third-party complaint seeking declaratory relief and damages for breach of contract. Its theory was that Kinsale, like Acuity, owed contractual obligations to Phipps and should bear an appropriate portion of any liability.
Judge Gallagher rejected that approach.
Why Subrogation Worked, but Third-Party-Beneficiary Status Did Not
The most interesting distinction between the two decisions concerns the source of Acuity’s claimed contractual rights.
In the 2024 decision, Acuity pursued a breach-of-contract claim against Kinsale through contractual subrogation. Having funded a settlement on behalf of Monarch, Acuity asserted rights derived from Monarch’s insurance relationship with Kinsale.
Subrogation allows an insurer, under appropriate circumstances, to step into the shoes of its insured and enforce rights that the insured could have asserted against another party.
The insurer is not claiming to be an original party to the other insurance contract. Rather, it asserts rights derived from the insured.
The February 2025 decision involved a different theory.
Acuity sought to enforce Kinsale’s alleged contractual obligations to Phipps, arguing that Colorado’s insurance regulatory framework supported treating co-insurers as third-party beneficiaries of one another’s insurance contracts.
Judge Gallagher disagreed.
Under Colorado law, a third party may enforce a contract only if the contracting parties intended to confer a benefit upon that party. It is not enough that the third party might incidentally benefit from performance of the contract.
The court found no authority establishing that insurers become intended beneficiaries of other insurers’ policies simply because they share coverage obligations.
As Judge Gallagher explained, Colorado law does not recognize a general right of co-insurers to enforce one another’s insurance contracts through direct breach-of-contract claims.
That distinction is critical.
An insurer may acquire enforceable contractual rights through subrogation without being an intended third-party beneficiary of the underlying policy. Conversely, the mere existence of overlapping coverage obligations does not create contractual privity between insurers.
The earlier decision recognized the former theory. The later decision rejected the latter.
Equitable Contribution: A Remedy That May Have to Wait
Although Judge Gallagher dismissed Acuity’s third-party claims, he did not conclude that Kinsale could never be required to contribute toward the underlying loss.
Quite the opposite.
The court expressly recognized that Acuity could pursue equitable contribution if it ultimately paid more than its appropriate share.
Relying on National Casualty Co. v. Great Southwest Fire Insurance Co., 833 P.2d 741 (Colo. 1992), the court observed:
“As Acuity admits, it will be able to bring a claim for contribution against its joint carriers if it ultimately pays more than its share of any loss.”
That observation is important for insurers involved in multi-carrier construction defect disputes.
Equitable contribution generally rests on the principle that insurers sharing a common obligation should bear their appropriate portions of that obligation. It is distinct from subrogation because the insurer asserting contribution proceeds on its own equitable rights rather than rights acquired from the insured.
But the existence of a potential contribution remedy does not necessarily mean the insurer can pursue it in whatever proceeding, or at whatever stage, it chooses.
In the February 2025 case, Acuity was attempting to allocate potential future liability among insurers in litigation brought by Phipps.
The court concluded that Acuity could pursue contribution separately if it ultimately paid more than its share.
This does not mean that every contribution claim must await final settlement or judgment, or that insurers cannot pursue contribution for defense costs already incurred. Those questions depend on the nature of the obligation, the payments made, and the applicable law.
The narrower point is that a potential future right of contribution does not automatically justify bringing another insurer into an existing coverage action through an otherwise unsupported contractual claim.
Declaratory Judgment Is Not a Substitute for an Enforceable Right
Acuity also sought a declaration allocating liability between itself and Kinsale according to their respective periods on the risk.
Kinsale challenged the court’s subject-matter jurisdiction, arguing that no sufficiently substantial controversy existed between the insurers.
The court observed that Acuity had not responded to that jurisdictional argument or established a viable controversy independent of its dismissed breach-of-contract claim.
Accordingly, Judge Gallagher dismissed the declaratory judgment claim for lack of subject-matter jurisdiction.
But he did not stop there.
The court also explained that, even if jurisdiction existed, it would decline to entertain the declaratory judgment claim as a matter of discretion.
Among other considerations, the court noted that Acuity’s potential contribution claims were separable from Phipps’ coverage action. Allowing Acuity to bring Kinsale into the case would add complexity and interfere with Phipps’ decision about which insurers to sue.
The court also discussed the limitations imposed by Federal Rule of Civil Procedure 19, which governs compulsory joinder.
The mere possibility that another insurer may share liability does not automatically require that insurer’s participation in the lawsuit.
Importantly, Judge Gallagher expressly declined to decide whether Kinsale could have been joined through a different procedural mechanism, including Rule 19.
The ruling therefore should not be read as categorically prohibiting joinder of absent co-insurers.
Instead, it illustrates the limitations of attempting to use declaratory relief to obtain an allocation of potential liability before establishing an appropriate substantive and procedural basis for doing so.
What Does This Mean for Construction Defect Practitioners?
These decisions are particularly relevant to Colorado construction defect litigation, where multiple subcontractors, successive policy periods, additional-insured endorsements, and overlapping coverage obligations frequently complicate settlement negotiations.
Consider a familiar scenario.
A general contractor is sued for construction defects allegedly attributable to a subcontractor’s work. The subcontractor maintained coverage with several insurers during potentially relevant periods. The general contractor tenders its defense to those insurers as an additional insured.
One insurer accepts the tender and funds the defense. Another declines.
Can the defending insurer immediately sue the nonparticipating insurer for breach of contract?
Not merely because both insurers potentially owe coverage to the same general contractor.
Can the defending insurer seek equitable contribution for defense costs it has already paid?
Potentially, assuming the requirements for contribution are satisfied.
What if the defending insurer subsequently funds a settlement and acquires subrogation rights under its policy?
That may provide an additional avenue for enforcing the insured’s contractual rights against another carrier.
And can the defending insurer force the nonparticipating carrier into the general contractor’s pending coverage lawsuit?
Perhaps, but not simply by asserting that the carriers share obligations. The insurer must identify a viable cause of action and satisfy the applicable procedural requirements.
The distinctions may seem technical, but they have substantial practical consequences.
They affect which claims should be pleaded, when those claims may be pursued, whether additional carriers can be joined, and how insurers should approach settlement negotiations when other potentially responsible carriers refuse to participate.
They also underscore the importance of distinguishing among three separate questions:
- Does another insurer owe coverage? That question turns on the language of its policy and the facts of the underlying claim.
- Does the insurer seeking recovery possess an enforceable right against that carrier? That depends on the applicable theory, including equitable contribution, subrogation, or contractual rights.
- Can that right be enforced in the existing litigation? That requires separate consideration of jurisdiction, joinder, ripeness, and procedural discretion.
An affirmative answer to the first question does not necessarily establish affirmative answers to the second or third.
The Takeaway: The Right Remedy, at the Right Time, in the Right Case
The two Acuity decisions illustrate an important principle of Colorado insurance law.
Courts recognize that insurers sharing responsibility for a covered loss may have equitable obligations to one another. They also recognize that an insurer that satisfies an insured’s obligation may, under appropriate circumstances, acquire enforceable rights through subrogation.
For insurers and their counsel, the practical lesson is straightforward: identify the precise source of the claimed right, determine whether the facts necessary to enforce that right have occurred, and select the appropriate procedural mechanism.
The distinction can mean the difference between a viable contribution or subrogation claim and a dismissed third-party complaint.
In multi-carrier construction defect litigation, it is not enough to establish that another insurer should pay. The equally important questions are who has the right to make it pay, when that right arises, and how it can be enforced.