Hoang v. Monterra Homes (Powderhorn) LLC

• Citation: 129 P.3d 1028
• Decision Date: 24 February 2005
• Docket Number: No. 02CA2544.,No. 03CA0379.,02CA2544.,03CA0379.
• Parties: Doug T. HOANG, Hieu T. Van, Gregory Storbakken, Joan Storbakken, Allan Walts, and Marsha Walts, Plaintiffs-Appellees, v. MONTERRA HOMES (POWDERHORN) LLC, a Colorado limited liability corporation, Defendant-Appellee, and Assurance Company of America, a New York corporation, and Maryland Casualty Company, a Maryland corporation, Garnishees-Appellants.
• Court: Court of Appeals of Colorado

129 P.3d 1028

Doug T. HOANG, Hieu T. Van, Gregory Storbakken, Joan Storbakken, Allan Walts, and Marsha Walts, Plaintiffs-Appellees, v. MONTERRA HOMES (POWDERHORN) LLC, a Colorado limited liability corporation, Defendant-Appellee, and Assurance Company of America, a New York corporation, and Maryland Casualty Company, a Maryland corporation, Garnishees-Appellants.

No. 02CA2544.

No. 03CA0379.

Colorado Court of Appeals, Division IV.

February 24, 2005.

As Modified on Denial of Rehearing May 12, 2005.

Certiorari Granted March 20, 2006.

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Vanatta Sullan Sandgrund & Sullan, P.C., Scott F. Sullan, Ronald M. Sandgrund, Joseph F. Smith, Greenwood Village, Colorado, for Plaintiffs-Appellee.

Holley Albertson & Polk, P.C., Dennis B. Polk, Golden, Colorado; Lottner Rubin Fishman Brown & Saul, P.C., Patrick J. Casey, Denver, Colorado, for Defendant-Appellee.

Hoffman Reilley Pozner & Williamson LLP, Sean Connelly, Eric Fisher, Denver Colorado; Meckler Bulger & Tilson, Bruce Meckler, Christopher E. Kentra, Chicago, Illinois, for Garnishees-Appellants.

Hall & Evans, L.L.C., Chris A. Mattison, Denver, Colorado; Wiley, Rein & Fielding, LLP, Laura A. Foggan, Ian A. Ossakow, Washington, D.C., for Amicus Curiae Complex Insurance Claims Litigation Association.

Bennington Johnson Biermann & Craigmile, LLC, Kenneth R. Bennington, Kathleen E. Craigmile, Denver, Colorado, for Amicus Curiae Homeowners Against Deficient Dwellings (HADD).

KAPELKE^*, J.

In this garnishment proceeding, garnishees, Assurance Company of America and Maryland Casualty Company (Insurers), appeal the judgment entered against them in favor of plaintiffs, Doug T. Hoang, Heiu T. Van, Gregory Storbakken, Joan Storbakken, Allan Walts, and Marsha Walts. The garnishment arises in connection with a judgment previously obtained by plaintiffs in this action against defendant, Monterra Homes (Powderhorn), LLC (Monterra), an insured under comprehensive general liability policies issued by Insurers. We affirm in part, reverse in part, and remand for additional proceedings.

Plaintiffs were purchasers of homes built by Monterra. The homes were constructed on a site that contained angled layers of Pierre shale and other soils, which, when exposed to water, expand and exert pressure on surface structures. Each of the homes suffered significant damage relating to the soil problems, and in this action plaintiffs asserted claims against Monterra for negligence, negligent misrepresentation, negligent nondisclosure or concealment, and violation of the Colorado Consumer Protection Act and the disclosure requirements of § 6-6.5-101, C.R.S.2004.

Before the trial of plaintiffs' claims against Monterra was concluded, Insurers filed a declaratory judgment action in federal district court seeking a determination of whether, and to what extent, the policies covered Monterra for the claims asserted by plaintiffs. Insurers did not serve plaintiffs or Monterra in the declaratory judgment action, however, until after the trial on plaintiffs' claims against Monterra.

In this action, the jury found in favor of plaintiffs and against Monterra on all the claims and awarded substantial damages. Following trial, plaintiffs served writs of garnishment upon Insurers, seeking to garnish Monterra's insurance policies for the full amount of their respective judgments.

In their answers to the garnishment writs, Insurers denied coverage. Plaintiffs thereafter filed a traverse, and the court set the garnishment matter for hearing.

Insurers filed a motion to strike the traverse and vacate the hearing or to stay the proceedings pending resolution of the federal declaratory judgment action or, in the alternative, for leave to engage in discovery. The court did not rule on the motion prior to the hearing.

At the hearing, Insurers argued that they had not been given the opportunity to conduct any discovery and that it would be unfair to require them to try the case without such discovery. The court ruled that it would allow the garnishment hearing to proceed and would determine after hearing the evidence whether discovery would be appropriate.

Plaintiffs presented expert and lay testimony of several witnesses, and the court admitted the transcribed testimony of eight witnesses from the underlying trial. The court expanded the time of hearing from two hours to four, and Insurers' counsel cross-examined all but one of the witnesses.

At the end of the hearing, the court ruled that Insurers would be allowed to conduct limited written discovery, but would not be permitted to take any depositions. The hearing was then continued until October 7, 2002 to allow Insurers to cross-examine plaintiffs' final witness and to present their own case.

Insurers filed a petition in the supreme court pursuant to C.A.R. 21, asserting that they were being denied due process by the trial court. The supreme court denied the petition without comment.

At the continued hearing on October 1, 2002, Insurers were given approximately two hours to cross-examine plaintiffs' final witness, Monterra's manager, and to present Insurers' own evidence, including the testimony of their two expert witnesses. Also, the parties stipulated to admission of the entire transcript of the trial of plaintiffs' claims against Monterra.

Following legal argument presented at a later hearing, the court ruled that the insurance policies provided coverage for all the damages that had been awarded by the jury against Monterra in the underlying action and entered judgment for plaintiffs on their traverse of Insurers' answers to the writ of garnishment.

I.

Insurers contend that the trial court violated their procedural rights by precluding them from conducting adequate discovery and by thus preventing them from litigating the issue of whether Monterra's acts were intentional wrongs and therefore not covered by the policies. We reject the contention.

A garnishment proceeding is an appropriate context for resolving coverage issues in a third-party insurance case. In such a proceeding, the court must determine whether the damages sustained were the result of a risk or hazard for which the insured had policy coverage. Bohrer v. Church Mut. Ins. Co., 965 P.2d 1258, 1266 (Colo.1998).

The procedures to be followed in a garnishment proceeding are set forth in C.R.C.P. 103. The judgment creditor attempting to collect on the judgment debt bears the burden of proving the existence and validity of the indebtedness of the garnishee. Accordingly, the garnishee is treated in the same manner as if it had been sued directly on the debt by the judgment debtor and is thus entitled to deny the indebtedness to the judgment debtor, to engage in discovery, and to have a hearing at which the judgment creditor must prove the allegations by a preponderance of the evidence. Maddalone v. C.D.C., Inc., 765 P.2d 1047, 1049 (Colo.App.1988). The parties may offer expert testimony and also may rely on portions of the record in the underlying tort case. Bohrer v. Church Mut. Ins. Co., supra, 965 P.2d at 1267; Butler v. Behaeghe, 37 Colo. App. 282, 286, 548 P.2d 934, 937 (1976).

Insurers assert that the trial court violated their procedural rights by denying oral discovery, by restricting the subject matter and scope of written discovery, and by allowing them insufficient time to present other fact-dependent issues related to the threshold "occurrence" issue, the "your work" exception, and the "known loss doctrine." We are not persuaded.

Discovery rulings, including rulings limiting discovery, are within the discretion of the trial court and will not be disturbed on appeal absent an abuse of discretion. An abuse of discretion occurs only if the trial court's decision is manifestly arbitrary, unreasonable, or unfair. Keybank v. Mascarenas, 17 P.3d 209, 214-15 (Colo.App.2000).

C.R.C.P. 103 does not specify the extent of discovery to be available in a garnishment action. Generally, case management provisions and rules governing discovery do not apply in an expedited proceeding. C.R.C.P. 16(a), 26(a); Keybank v. Mascarenas, supra, 17 P.3d at 215. A garnishment proceeding is an expedited proceeding. Ortiz v. Valdez, 971 P.2d 1076, 1078 (Colo.App. 1998).

Here, although Insurers were not allowed to take oral depositions, they were permitted to call or cross-examine those witnesses as to whom they had sought discovery. Further, Insurers have not demonstrated how, if at all, additional discovery would have affected the outcome of the garnishment trial. As discussed. Insurers had access to all the testimony and other evidence presented in the underlying trial and were permitted to engage in some written discovery. Accordingly, under the circumstances, we find no abuse of discretion by the trial court warranting reversal.

II.

Insurers maintain that the trial court improperly prejudged the issue of whether the property damage at issue was caused by an "occurrence" within the meaning of the policies. We perceive no basis for reversal.

At the outset of the hearing, the court stated, "The trial in this case has already happened, and it's not going to happen again." The court further commented that "it was crystal clear" from the evidence in the underlying trial that there was an occurrence and added, "We're not going to litigate whether there was an occurrence."

Despite its early comments, however, the court ultimately placed no restriction on the evidence Insurers could offer and also allowed them to present expert testimony to "contradict or supplement" plaintiffs' expert testimony. The court's findings and conclusions indicate that it considered the evidence and legal arguments on the "occurrence" issue. Under the circumstances, we therefore reject Insurers' contention that the court improperly prejudged the issue or prevented them from presenting evidence.

III.

Insurers next contend that the trial court applied an incorrect legal...