American Cas. Co. v. Glaskin, Civ. A. No. 92-B-683.

• Decision Date: 20 October 1992
• Docket Number: Civ. A. No. 92-B-683.
• Citation: 805 F. Supp. 866
• Parties: AMERICAN CASUALTY COMPANY and Columbia Casualty Company, Plaintiffs, v. James R. GLASKIN, et al., Defendants.
• Court: U.S. District Court — District of Colorado

805 F. Supp. 866

AMERICAN CASUALTY COMPANY and Columbia Casualty Company, Plaintiffs, v. James R. GLASKIN, et al., Defendants.

Civ. A. No. 92-B-683.

United States District Court, D. Colorado.

October 20, 1992.

COPYRIGHT MATERIAL OMITTED

Jack W. Berryhill, Berryhill, Cage & North, P.C., Denver, Colo.; and Chris Ballentine and Kristy C. Brown, Fisher, Rushmer, Werrenrath, Keiner, Wack & Dickson, P.A., Orlando, Fla., for plaintiffs.

John M. Kobayashi, Diane Vaksdal Smith, Kobayashi & Associates, P.C.; Kathie J. Fliss, Kathie J. Fliss, P.C.; and Jonathan K. Cook, Denver, Colo., for RTC.

Miles C. Cortez, Jr., Julie M. Williamson, and Frederick G. Garger, Cortez Friedman & Coombe, P.C., Denver, Colo., for Lee, Martin, Peterson, Retherford and Webster.

Jon B. Clarke, Clarke & Waggener, P.C., Englewood, Colo., for Palsmeier.

Paul E. Goodspeed, G. Stephen Long, and Joseph S. Berman, Coghill & Goodspeed, P.C., Denver, Colo., for Haskins.

James R. Glaskin, Union Plaza Associates, Colorado Springs, Colo., defendant pro se.

MEMORANDUM OPINION AND ORDER

BABCOCK, District Judge.

Plaintiffs move to dismiss several counter-claims asserted by the various defendants as well as certain claims for damages and attorney fees, and demand for jury trial. Jurisdiction is based on diversity and the presence of a federal agency, the Resolution Trust Corporation, as a party. 28 U.S.C. §§ 1331 and 1332 and 12 U.S.C. § 1819(b)(1) and (2)(A). Colorado law controls resolution of the motion.

The issues are adequately briefed and oral argument will not materially aid their resolution. Because defendants fail to state a claim for breach of fiduciary duty, all counter-claims for breach of fiduciary duty are dismissed. Further, RTC has not stated a claim for third-party beneficiary breach of contract and, therefore, plaintiffs' motion to dismiss is granted as to that claim. Next, in accordance with Colorado law, all claims for punitive damages related to any counter-claim sounding in contract or equity are dismissed. Defendants are not entitled to a jury trial on their constructive non-renewal counter-claim and those demands are stricken. In all other respects, plaintiffs' motion is denied.

This declaratory judgment action arises out of a series of directors' and officers' liability insurance policies written by plaintiffs between 1985 and 1989. Defendants James R. Glaskin, James H. Palsmeier, and Thomas H. Haskins all served as either directors or officers of the First Federal Savings & Loan Association of Colorado Springs (First Federal). Defendants Harry L. Lee, Jr., William T. Martin, Carl B. Peterson, Jr., Jerry A. Retherford, and Charles R. Webster all served as outside directors of First Federal. Defendant Resolution Trust Corporation (RTC) was appointed receiver for First Federal in June, 1990.

In March, 1992, RTC filed suit in U.S. District Court for the District of Colorado against these former directors and officers alleging negligence and breach of fiduciary duties in connection with certain loans made by First Federal between 1983 and 1988. Plaintiffs then filed this separate action seeking a declaration that they are not liable on the claims asserted by RTC in the underlying action.

Plaintiffs initially insured all directors and officers of First Federal in 1985 for a one year term, with First Federal paying the premium. The policy covered First Federal's directors and officers for any claim they might become legally obligated to pay based upon a wrongful act committed within the scope of their official duties. The policy also provided indemnity coverage for First Federal itself. In 1986, First Federal renewed this policy on behalf of itself and its directors and officers for another one year term. However, the renewal policy excluded from coverage any action brought by RTC against the insureds. The renewal policy also excluded from coverage any action by one insured against another. First Federal renewed this policy, with the exclusions, for one year terms again in 1987, 1988, and 1989.

All defendants here have counter-claimed, alleging that plaintiffs did not provide required notice of the reduced coverage. Relying on the doctrine of constructive non-renewal, defendants claim they are entitled to the broader coverage provided by the 1985 policy. See, GEICO v. United States, 400 F.2d 172 (10th Cir.1968). All defendants also counter-claim for breach of fiduciary duty, breach of contract, punitive damages, and attorney fees, and all defendants demand a jury trial and an expedited trial. Additionally, the outside directors and Palsmeier have counter-claimed for bad faith denial of coverage.

Plaintiffs now seek to dismiss the breach of fiduciary duty counter-claims, the bad faith denial counter-claims, and RTC's breach of contract counter-claim. Further, plaintiffs seek to dismiss all claims for punitive damages and attorney fees, and all demands for a jury trial and an expedited trial.

Under Fed.R.Civ.P. 12(b)(6), a motion to dismiss tests the formal sufficiency of the complaint and is limited to the four corners of that pleading. A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that a plaintiff can prove no set of facts that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957). In reviewing the sufficiency of a complaint, all well-pleaded factual allegations must be taken as true and all reasonable inferences must be liberally construed in the claimant's favor. Weiszmann v. Kirkland & Ellis, 732 F.Supp. 1540, 1543 (D.Colo.1990).

I.

Plaintiff moves to dismiss defendants' counter-claims for breach of fiduciary duty, arguing that such a claim is not recognized by Colorado law. Under the circumstances here, I agree.

In Farmers Group, Inc. v. Trimble, 691 P.2d 1138 (Colo.1984), the Colorado Supreme Court first recognized that an insurance company stands in a position similar to that of a fiduciary. Later decisions have characterized this relationship as "quasi-fiduciary." Allstate Ins. Co. v. Troelstrup, 789 P.2d 415, 420 (Colo.1990). However, no Colorado court has ever held that an insurance company owes a full fiduciary duty to its insured. Indeed, the opposite is true. Ballow v. Phico Ins. Co., 841 P.2d 344, 350 (Colo.App.1992), ("While an insurance company stands in a position similar to that of a fiduciary, it is not a fiduciary"), citing with approval, Rawlings v. Apodaca, 151 Ariz. 149, 726 P.2d 565 (1986), (Insurer has some duties of a fiduciary but is not a fiduciary).

Nevertheless, defendants argue that "the insurer's duty to adequately inform the insured of significant changes resulting in reductions in coverage is, therefore, necessarily encompassed by the quasi-fiduciary relationship." This argument is nothing more than a restatement of defendants' constructive non-renewal claim. See, infra, section VI. Further, the argument is specious. Merely because an insurer has a common-law and statutory duty to inform its insured of reductions in coverage in a renewal policy does not convert a quasi-fiduciary relationship into a full fiduciary relationship. Therefore, I hold that where, as here, the alleged fiduciary duty is rooted in an insurer's duty to inform its insured of coverage reductions in a renewal policy, allegations of breach of that duty to inform do not give rise to a cognizable claim of breach of fiduciary duty under Colorado law.

II.

Plaintiffs also seek to dismiss the outside directors' and Palsmeier's counter-claims for bad faith denial of coverage. These defendants allege that plaintiffs breached their duty of good faith by unreasonably denying coverage when they knew or should have known that such denials were improper and unreasonable.

In Travelers Ins. Co. v. Savio, 706 P.2d 1258 (Colo.1985), the Colorado Supreme Court recognized a "first-party" bad faith claim for the unreasonable denial of benefits or coverage. In assessing this claim, courts must determine "whether the facts pleaded show the absence of any reasonable basis for denying the claim." Farmers Group, 691 P.2d at 1142. Here, the relevant counter-claims allege that plaintiffs had no reasonable basis for denying coverage because the policy exclusions added after 1985 are void. Defendants contend that plaintiffs should have known that these exclusions are void for lack of proper notice and, therefore, plaintiffs' conduct was unreasonable. Accepting these allegations are true and indulging in all reasonable inferences, I conclude that these defendants state a claim for bad faith denial of coverage.

Plaintiffs reliance on Ballow is misplaced. In that case, the court held that an insurance company's decision not to renew an existing policy cannot support a bad faith claim. Ballow, supra, at 353-54, 1992 WL 119796 at *8, 1992 Colo.App. LEXIS 238 at *20-21. The court reasoned that "it is the insurance contract that creates the special relationship giving rise to the duty of good faith.... However, when an insurer decides not to renew a policy, it has already fully performed its contract and there no longer exists that special relationship giving rise to a duty of good faith." Id. at 353, 1992 WL 119796 at *7, 1992 Colo.App. LEXIS 238 at *19. Therefore, the court refused to extend the duty of good faith to include initial sales and renewal negotiations. Id.

In this case, however, defendants complain of plaintiffs' denial of coverage under the terms of existent insurance contracts. Plaintiffs' denial of coverage may be unreasonable because the exclusions added after 1985 are void, but this theory is not precluded by Ballow, where the insurance contract was fully performed. I conclude that this theory states a cognizable claim that plaintiffs' denial of coverage was in bad faith. Accordingly, plaintiffs' motion to dismiss these counter-claims is denied.

III.

Plaintiffs next move to dismiss RTC's counter-claim for breach of...