RICHARD P. MATSCH, Senior District Judge.
This insurance dispute arises out of an underlying state court action, Woodmen Heights Metropolitan District et al., v. Prairie Home Vista, LLC et al., Case No. 08CV4553, in the District Court for El Paso County, colorado ("the Underlying Action").
In this federal diversity action, plaintiff KF 103-CV, LLC ("KF 103") seeks declaratory relief determining that defendant American Family Mutual Insurance Company ("American Family") was and is obligated to defend and indemnify KF 103 with respect to claims brought against KF 103 in the Underlying Action. KF 103 also seeks damages based on claims of breach of contract and violation of duties of good faith and fair dealing; unfair claims settlement practices in violation of C.R.S. § 10-3-1104(1)(h), and improper denial of insurance benefits in violation of C.R.S. §§ 10-3-1115 and 10-3-1116. American Family denies liability.
On March 17, 2014, American Family moved pursuant to Fed.R.Civ.P. 56, seeking summary judgment in its favor on the issue of its duty to defend. KF 103 moved pursuant to Fed.R.Civ.P. 56, seeking determinations that American Family breached the duties of defense and indemnification.
The parties have submitted a joint Statement of Undisputed Facts; the Insurance Policy; orders and pleadings from the Underlying Action, and other evidence. The material facts are not in dispute.
The Underlying Action arose out of an easement dispute. The background and procedural history of that dispute are as follows:
In late 2004 and 2005, an entity known as Keller/Campbell Joint Venture, LLC purchased real property in El Paso County, Colorado from Infinity Holding Company, LLC and Howard amily Investments, LLC, and H2 Land Co., LLC. (collectively "the Infinity Group") pursuant to two Purchase Agreements. In November 2006, Keller/Campbell Joint Venture, LLC conveyed the property to KF 103.
The property is commonly known as Cumbre Vista. KF 103 planned the development of a new residential subdivision known as the Cumbre Vista Subdivision.
The Purchase Agreements required the seller — i.e., the Infinity Group — to complete improvements to boundary streets adjoining the property. Those streets included an intersection of Ski Lane and Sorpresa Lane (the "Intersection"), located generally at the southernmost boundary of the property.
The Infinity Group designed a reconfiguration of the Intersection that involved changes to roads, including modification of the width and elevation of Sorpresa Lane. Grading work for construction of the Intersection began in approximately May 2007.
Owners of adjoining properties objected, contending that the planned modification of the Intersection would violate an express easement that provided access to their properties ("the Easement"). Construction of the Intersection stopped from approximately June 2007 to mid-November 2007 due to those objections. In March, 2008, Infinity Group conveyed the property underlying the Intersection to Woodmen Heights Metropolitan District (" the Metropolitan District").
On September 4, 2008, the Metropolitan District and KF 103 commenced the Underlying Action as a quiet title action, seeking determination of rights in the right-of-way Easement and a declaration that the Easement could be relocated. (Pl.'s Ex. 4).
In early October 2008 — when the litigation was still in its initial stage — construction of the Intersection was completed.
In October and November 2008, the Neighbors answered the complaint and some filed pro se counterclaims. Over a year later, on March 22, 2010, the El Paso County District Court dismissed those counterclaims without prejudice on the ground that they failed to provide proper notice of the specific claims being alleged. (Pl.'s Ex. 6).
On October 13, 2010, the El Paso County District Court held a bench trial and issued oral rulings. (Pl.'s Ex. 7; Def.'s Ex. B). The Court rejected the claims of KF 103 and the Metropolitan District, concluding that the Neighbors' Easement rights had been impaired by the reconstruction of the Intersection and the plaintiffs had not complied with requirements under Colorado law for the relocation of easements. When announcing those rulings, the Court stated:
(Def.'s Ex. B, Tr. (Oct. 13, 2010) at 18:13-24). The Court ordered the Metropolitan District and KF 103 to provide a proposal of how and when the Neighbors' easement rights could be restored. (Id. at 20:11-22).
On December 23, 2010, the El Paso County District Court issued a written order on post-trial motions. (Pl.'s Ex. 8; Def.'s Ex. C). In that order the Court stated, inter alia:
(Def.'s Ex. C at pp. 2-3). The order stated that a hearing on the issue of remedies would be required and that the Neighbors were "free to ask for restoration, or damages or both." The Court required them to "submit a pleading in advance of the hearing to specify the remedies that each party seeks." (Id. at p. 5).
During the relevant time period, KF 103 was the named insured on several consecutive Commercial General Liability Policies issued by American Family.
In May, 2011 through mid-August 2011, the Neighbors asserted counterclaims against KF 103 as follows:
Peck filed his "Statement of Claims 2nd Amended Counterclaim" on May 18, 2011. ("Peck's 2011 Counterclaims," Pl.'s Ex. 9; Def.'s Ex. D). In that pleading Peck alleged a claim of trespass against KF 103 and requested equitable relief as the remedy. He also sought sanctions for alleged misconduct of its counsel.
Hanson filed a letter with the subject line "Documentation of my Counterclaims" on June 8, 2011, stating that she was seeking compensation for deprivation of the use of the access road; trespass; compensation for physical and emotional distress, and "punitive damages for intentional and willful actions taken on the part of the developers, with full knowledge and awareness of their actions." (Def.'s Ex. E).
The Marchants, Howell, and Nance jointly filed Amended Counterclaims on August 18, 2011, alleging three claims styled as (1) trespass and continuing trespass; (2) negligence, and (3) restoration. ("Marchants' 2011 Counterclaims," Pl.'s Ex. 10; Def.'s Ex. F). They requested injunctive relief, including restoration of the Easement, and damages for "the loss of value to Defendants' properties" and "inability to access their properties," interest, fees and costs.
On August 29, 2011, KF 103 formally tendered the defense of the counterclaims to American Family in an email which attached the transcript of the El Paso County District Court's October 13, 2010 oral ruling; the written Order dated December 23, 2010; Peck's 2011 Counterclaims, and the Marchants' 2011 Counterclaims. (Pl.'s Exs. 11; see also Pl.'s Ex.12).
In a letter dated October 17, 2011, American Family declined to provide a defense or indemnity to KF 103. (Pl.'s Ex. 12).
KF 103 requested reconsideration of the denial of coverage, and on March 14, 2012, American Family issued another letter denying coverage. (Pl.'s Exs. 13 & 14).
In July 2012, amended counterclaims and third party complaints were filed in the Underlying Action. The Marchants, Howell, and Nance jointly filed a Second Amended Counterclaim and Third-Party Complaint on July 17, 2012, alleging eight claims against KF 103 styled as (1) trespass and continuing trespass; (2) negligence; (3) restoration; (4) negligent misrepresentation; (5) negligence [sic] misrepresentation; (6) prescriptive easement; (7) Nance trespass, and (8) civil conspiracy. ("the Marchants' 2012 Counterclaims," Pl.'s Ex. 15, Def.'s Ex. G). Again they requested injunctive relief, including restoration of their Easements, "damages for the loss of use to Defendants' Easements"; "damages for the loss of value to Defendants' properties", and "damages for Defendants' inability to access their properties." Their 2012 Counterclaims also included requests for "damages for the personal injuries of annoyance and discomfort"; damages for the personal injuries of annoyance and discomfort"; "damages for personal injuries of emotional distress and mental anguish;" exemplary damages; interest, costs and attorney's fees. With respect to the claim styled as "Nance trespass," Nance requested restoration or damages for damage to her individual property based on allegations that the plaintiffs or third party defendants had regraded a portion of her property, constructed a road across its northern boundary and removed large quantities of soil without her consent.
Peck filed his Third Amended Counterclaim and Third-Party Complaint on July 18, 2012, alleging claims against KF 103 and others styled as trespass and continuing trespass; negligence; restoration; negligent misrepresentation; prescriptive easement; and civil conspiracy ("the 2012 Peck Counterclaims," Pl.'s Ex. 15a, Def.'s Ex. H).
In a letter dated August 30, 2012, KF 103 re-tendered the defense of the counterclaims to American Family. That letter incorporated KF 103's original tender dated August 29, 2011, and enclosed the Marchant Group's 2012 Counterclaims and Peck's 2012 Counterclaims. (Pl.'s Ex. 16).
By letter dated September 21, 2012, American Family again denied KF 103's request for defense and indemnity. (Pl.'s Ex. 17).
In October 2012, the El Paso County District Court held a second trial in the Underlying Action for the purpose of determining remedies. On November 26, 2012, the Court issued a 24-page written order captioned "Order Re: Equitable Remedies and Judgment," reconfirming the Court's legal conclusions from the first trial and making additional findings and conclusions. (Pl.'s Ex. 18). The Court found in favor of the Neighbors on their claim of trespass and also concluded that "there was a Civil Conspiracy among virtually all of the Plaintiffs and third party defendants to trespass on the Neighbor's [sic] easements." (Id. at 10). The Court also found in favor of the Neighbors on their claim of negligence.
With respect to the civil conspiracy claim, the Court found that by March 2005, the individuals and entities "on the developers' side of the lawsuit" (which included KF 103) had either constructive or actual notice of the Neighbors' easement rights by virtue of a title commitment and survey and by the Neighbors' use of the road for years. The Court further found that those persons had agreed to a plan that resulted in the destruction of deeded and prescriptive right-of-way easements. (Id. at 10). The Court found that such actions were not taken with "malicious" intent, describing testimony showing that KF 103 and others had relied on advice of counsel who told them that the easements could be legally moved without consent, condemnation or court action. The Court stated that "while various entities may have relied on advice of counsel, that does not absolve them of their responsibility for the trespass." (Id. at 12).
With respect to KF 103's participation in the conspiracy, the Court found inter alia:
(Id. at 12-13).
With respect to claim of negligence, the Court stated:
(Id. at 22).
The Court ordered partial restoration of the Easement, and awarded the Neighbors damages for loss of value to their homes, loss of use of Ski Lane, the partial loss of Sorpresa, stress and inconvenience. Two third party defendants were ordered to restore 36,000 cubic yards of dirt to the Nance property.
In January, 2013, KF 103 requested that American Family reimburse KF 103 for its attorneys' fees and costs in defending against the Neighbors' claims in the Easement Litigation. American Family did not respond to that request, and KF 103 filed this complaint on September 10, 2013.
The substantive law of Colorado governs this dispute.
The first issue to be determined is whether American Family had a duty to fund KF 103's defense of the counterclaims. The duty to defend is distinct from and broader than the duty to indemnify. Constitution Assocs. v. N.H. Ins. Co., 930 P.2d 556, 563 (Colo. 1996). In Colorado, the duty to defend is to be determined from the complaint in the underlying action:
Hecla Mining Co. v. N.H. Ins. Co., 811 P.2d 1083, 1089 (Colo. 1991) (citation, footnote, brackets and internal quotation marks omitted) ("Hecla"); see also Cotter Corp. v. Am. Empire Surplus Lines Ins. Co., 90 P.3d 814, 828 (Colo. 2004).
"In the duty to defend context, the `complaint rule' operates to cast a broad net, such that when the underlying complaint alleges any facts or claims that might fall within the ambit of the policy, the insurer must tender a defense." Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 301 (Colo. 2003) (emphasis in original.) "An insurer seeking to avoid its duty to defend an insured bears a heavy burden." Hecla, 811 P.2d at 1089.
When determining whether the insurer was obligated to provide a defense, the "court must examine the nature of the facts alleged and claims pled in the complaint ... liberally with a view toward affording the greatest possible protection to the insured." Cyprus, 74 P.3d at 297.
In coverage disputes, the insured has the burden of proving that the claim comes within the coverage of the policy, and the insurer has the burden of proving that the facts fall within a policy exclusion. See Colorado Intergovt'l. Risk Sharing Agency v. Northfield Ins. Co., 207 P.3d 839, 842 (Colo.App.2008); Rodriguez v. Safeco Ins. Co., 821 P.2d 849, 853 (Colo.App.1991).
The Insuring Agreements in all versions of the Policy are identical. The Policy's Insuring Agreement provides, in pertinent part:
(Def.'s Ex. A at AmFam 000014).
In the Policy, the term "occurrence" is defined as, "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Def.'s Ex. A at AmFam 000023).
Under Colorado law, an accident is considered to be "an unanticipated or unusual result flowing from a commonplace cause." Union Ins. Co. v. Hottenstein, 83 P.3d 1196, 1201 (Colo. App. 2003) (citing Carroll v. CUNA Mut. Ins. Soc'y, 894 P.2d 746, 753 (Colo. 1995)). "[I]t is the `knowledge and intent of the insured' that make injuries or damages expected or intended rather than accidental." Hoang v. Monterra Homes LLC, 129 P.3d 1028, 1034 (Colo.App. 2005) (quoting Hecla, 811 P.2d at 1088) (rev'd on other grounds, 149 P.3d 798 (Colo. 2007)).
KF 103 asserts that coverage was triggered by the factual allegations supporting the claims of negligence in the Marchants' 2011 Counterclaims and the Marchants' and Peck's 2012 Counterclaims. KF 103 also points to the claim of trespass in Peck's 2011 Counterclaims and the claims of negligent misrepresentation alleged in the Marchants' and Peck's 2012 Counterclaims. KF 103 asserts that any of those claims, if sustained, would impose a liability covered by the Policy.
American Family characterizes all of the 2011 and 2012 counterclaims as premised on intentional conduct — KF 103's knowing violation of the Neighbors' Easement rights.
"It is ... the factual allegations in the complaint, and not the legal claims, that determine an insurer's duty." Gerrity Co. v. CIGNA Prop. & Cas. Co., 860 P.2d 606, 607 (Colo. App. 1993)(collecting cases).
The allegations supporting the claim of trespass in Peck's 2011 Counterclaims do not trigger coverage. Peck alleged:
(Def.'s Ex. D, at ¶¶ 10, 17).
Those allegations cannot be read as including allegations of an accident or unanticipated consequences. "Trespass is the physical intrusion upon property of another without the permission of the person lawfully entitled to the possession of the real estate." Burt v. Beautiful Savior Lutheran Church, 809 P.2d 1064, 1067 (Colo. App. 1990) (citing Magliocco v. Olson, 762 P.2d 681 (Colo.App.1987)). The requisite intent is "the intent to do the act that itself constitutes, or inevitably causes, the intrusion." Burt, 809 P.2d at 1067 (citing Miller v. Carnation Co., 33 Colo. App. 62, 516 P.2d 661 (1973)). Colorado does not recognize a tort of "negligent trespass." Burt, 809 P.2d at 1067.
Contrary to KF 103's arguments, coverage was not triggered by the claims of negligent misrepresentation in the Marchants' and Peck's 2012 Counterclaims. The allegations supporting those claims are that KF 103 falsely represented the identity of the party responsible for the Cumbre Vista development during its dealings with the City; falsely represented to the Neighbors that a barricading of the Easement was only temporary, and falsely represented to the City and others that KF 103 owned all the real property under Sorpresa Lane. (Def.'s Ex. G at ¶¶ 96-104; Def.'s Ex. H at ¶¶ 69-99). Although captioned as claims of negligent misrepresentation, those are allegations of intentional misrepresentations. In addition, as discussed more fully below, there are no allegations that those the alleged misrepresentations caused "bodily injury" or "property damage," as those terms are defined in the Policy.
The focus of the inquiry must be the allegations supporting the claims of negligence. In the Marchants' 2011 Counterclaims, the negligence claim is premised on the following allegations:
(Def.'s Ex. F at ¶¶ 19-29).
Inclusion of phrases such as "in the exercise of due care should have known," "recklessly" and "negligence" imply that KF 103 failed to appreciate that relocation of the Intersection would violate the Neighbors' Easement. However, those terms and phrases are conclusory, and it is obvious from the totality of the allegations that the claim is premised on intentional disregard of the Neighbors' Easement rights. Although styled as a claim of negligence, this is a claim of trespass.
In the Marchants' 2012 Counterclaims, the negligence claim is based on the following allegations:
(Def.'s Ex. G at pp. 9-12, ¶¶ 68-88; see also Def.'s Ex. H at p. 8, ¶ 52).
The references in paragraphs 70, 71, 77, 78 to a "legal duty" and references in paragraphs 79, 80, 81, 84, 85, 86, and 88 to "negligence," "negligent failure," and actions taken "recklessly" imply that the resulting violation of the Neighbors' Easement was unintended. Those phrases are merely conclusory. Again, it is evident from the well-pleaded allegations that this is really a claim of trespass, premised on intentional conduct.
Even if those allegations might otherwise be read as pleading unintentional conduct, such an interpretation would be unwarranted because the El Paso County District Court, in its oral rulings dated October 13, 2010, and written order dated December 23, 2010, already had found that KF 103 knowingly violated the Neighbors' Easement rights.
KF 103 contends that the complaint rule (also known as the "Four Corners Rule") precludes consideration of the El Paso County District Court's oral and written rulings following the trial in October 2010, and that American Family violated that rule when it declined to provide a defense.
The Four Corners rule protects the insured's legitimate expectation of a defense and prevents the insured's defense in the underlying action from being compromised by a declaratory-judgment action brought by the insurer while the underlying action is in progress. See Cotter, 90 P.3d at 828; Hecla, 811 P.2d at 1090. In Pompa v. American Family Mutual Insurance Co., 520 F.3d 1139 (10th Cir. 2008), the Tenth Circuit predicted that "the Colorado Supreme Court would recognize an exception [to the Four Corners Rule] when doing so would not undercut the purposes served by the rule." 520 F.3d at 1147. The Tenth Circuit also observed that "judicially noticeable facts" are incorporated into the complaint. Id. at 1149. See also Apartment Inv. & Mgmt. Co. (AIMCO) v. Nutmeg Ins. Co., 593 F.3d 1188, 1194 (10th Cir.2010) (predicting that the Colorado Supreme Court would recognize an exception to the Four Corners rule "requiring an insurer to consider facts which it is aware of in parallel complaints that tend to show a duty to defend ...").
In United Fire & Casualty Company v. Boulder Plaza Residential, LLC, 633 F.3d 951 (10th Cir. 2011), the Tenth Circuit explained that its holding in Pompa is "based on the expectation that the Colorado Supreme Court would recognize an exception to the complaint rule if an insured's complaint contained allegations made in bad faith and "framed to trigger an insurance policy." 633 F.3d at 960 (quoting Pompa, 520 F.3d at 1149).
In light of the El Paso County District Court's determination that KF 103 and the Metropolitan District had violated the Easement with knowledge of the Neighbors' rights in it, KF 103 could not have had a legitimate expectation that American Family would fund its defense in subsequent proceedings regarding the remedies to be imposed for that intentional conduct. It is of no consequence that the Court orders referred to KF 103 and the Metropolitan District jointly as "the developer."
The counterclaimants were entitled to plead alternative theories, but when they included claims of negligence in their counterclaims, KF 103's knowing violation of the Easement was already established. The Marchants' and Peck's 2012 Counterclaims supplemented the allegations of negligence, which suggests that the new allegations may have been added as an attempt to trigger insurance coverage. But even if they were not, the Four Corners Rule does not preclude consideration of the orders of the El Paso County District Court that preceded the filing of both sets of Counterclaims.
In short, coverage was not triggered because the counterclaims did not allege property damage or bodily injury resulting from an "occurrence."
Coverage is not triggered for the additional reason that the counterclaims do not allege "bodily injury""or "property damage" as those terms are defined in the Policy.
"Bodily injury" is defined in the Policy as, "bodily injury, sickness or disease by a person, including death resulting from any of these at any time." (Def.'s Ex. A at AmFam 000022).
In National Casualty Co. v. Great Southwest Fire Insurance Co., 833 P.2d 741, 746 (Colo. 1992), the Colorado Supreme Court concluded that the term "bodily injury," which was defined in the subject insurance policy as "bodily injury, sickness, or disease," covers only physical injury and does not include claims for purely nonphysical or emotional harm. The Colorado Supreme Court held that without allegations of physical injury, physical contact, or pain, the underlying plaintiff's claim of emotional distress did not fall within the general liability policy's coverage for bodily injury.
Here the counterclaimants allege emotional distress and "physical discomfort," but those allegations are not sufficient to bring the claims within the definition of "bodily injury" because there are no allegations of any physical manifestations of the alleged emotional harm.
The term "property damage" is defined in the Policy as:
(Def.'s Ex. A. at AmFam 000024).
The term "tangible property" means "that which is capable of being handled, touched, or physically possessed." Lamar Truck Plaza, Inc. v. Sentry Ins., 757 P.2d 1143, 1144 (Colo. App. 1988) (observing that purely economic damages are not included within the term "property damage" in a comprehensive general liability policy).
An easement is an interest in land owned by another that entitles its holder to a specific limited use or enjoyment. It is an intangible property right.
The Neighbors' allegations of damage to their Easement rights do not constitute "property damage," nor do their allegations of damages stemming from interference with access to their residences.
The Neighbors alleged damage to the roadways, but they do not claim ownership of the roadways and those allegations pertain to their claimed loss of Easement rights.
Even if the Counterclaims could be read to include allegations of damage to tangible property or loss of use of tangible property, they cannot be interpreted as alleging that such damage or loss of use was caused by an accident.
In sum, the coverage provided in the Insuring Agreement was not triggered. Accordingly, exclusions to coverage need not be addressed.
Because American Family had no duty to defend, it also had no duty of indemnification.
Based on the foregoing, it is
ORDERED that the Plaintiff's motion for summary judgment [# 22] is denied and the Defendant's motion for summary judgment [#20] is granted.
The Clerk shall enter judgment dismissing this action and awarding costs.
KF 103 also contends that coverage is shown by the fact that American Family accepted the defense of Keller Homes, which was insured under an identical CGL policy. (See Pl.'s Exs. 24 & 25). It is beyond dispute that the Four Corners Rule precludes consideration of those facts, and accordingly, this order does not address that argument.
