Colo. Pool Sys., Inc. v. Scottsdale Ins. Co.

• Decision Date: 21 November 2012
• Docket Number: No. 10CA2638.,10CA2638.
• Citation: 317 P.3d 1262
• Parties: COLORADO POOL SYSTEMS, INC.; and Patrick Kitowski, Plaintiffs–Appellants, v. SCOTTSDALE INSURANCE COMPANY, a foreign corporation; GAB Robbins North America, Inc., a Delaware corporation; and Don Hansen, Defendants–Appellees.
• Court: Colorado Court of Appeals

317 P.3d 1262

COLORADO POOL SYSTEMS, INC.; and Patrick Kitowski, Plaintiffs–Appellants,

v.SCOTTSDALE INSURANCE COMPANY, a foreign corporation; GAB Robbins North America, Inc., a Delaware corporation; and Don Hansen, Defendants–Appellees.

No. 10CA2638.

Colorado Court of Appeals,

Div. IV.

Oct. 25, 2012.

Rehearing Denied Nov. 21, 2012.^*

Limited on Constitutional Grounds

West's C.R.S.A. § 13–20–808Walter H. Sargent, P.C., Walter H. Sargent, Colorado Springs, Colorado; Cook & Associates, P.C., Stephen H. Cook, Boulder, Colorado, for Plaintiffs–Appellants.

Senter Goldfarb & Rice, L.L.C., Arthur J. Kutzer, Joel A. Palmer, Denver, Colorado, for Defendant–Appellee, Scottsdale Insurance Company.

White and Steele, P.C., James M. Dieterich, Laura E. David Fuller, Denver, Colorado, for Defendants–Appellees, GAB Robbins North America, Inc.; and Don Hansen.

Holley, Albertson & Polk, P.C., Dennis B. Polk, Eric E. Torgersen, Lakewood, Colorado, for Amicus Curiae, Colorado Association of Home Builders.

The Witt Law Firm, Jesse Howard Witt, Marci M. Achenbach, Denver, Colorado, for Amicus Curiae, The Colorado Trial Lawyers Association.

Sullan2, Sandgrund & Perczak, P.C., Ronald M. Sandgrund, Leslie A. Tuft, Denver, Colorado, for Amicus Curiae, Homeowners Against Deficient Dwellings (HADD).

Opinion by Judge RUSSEL.

¶ 1 Plaintiffs, Colorado Pool Systems, Inc., and its owner, Patrick Kitowski, appeal from summary judgments in favor of defendants, Scottsdale Insurance Company, GAB Robbins North America, Inc., and GAB's employee, Don Hansen. We reverse and remand for further proceedings.

I. Background

¶ 2 The main issue here is whether a builder is covered, under a commercial general liability (CGL) policy, for damages that arose from the builder's own faulty workmanship. We conclude that, for certain damages, unless the policy contains specific exclusions, the answer is yes.

A. The Defective Pool

¶ 3 In 2005, Colorado Pool agreed to build a swimming pool at Founders Village Pool and Community Center. Colorado Pool hired subcontractors to construct the pool's concrete shell. To build the shell, workers poured concrete around a rebar frame that was located inside the excavation.

¶ 4 After the shell was poured, an inspector noticed that some rebar was too close to the surface. Colorado Pool proposed various remedial measures, but Founders rejected those.

¶ 5 Founders turned to its general contractor, White Construction Group, and demanded that the pool be removed and replaced. White then passed the demand to Colorado Pool. White stated that, if Colorado Pool did not promptly satisfy its obligations, White would have the pool replaced at Colorado Pool's expense.

¶ 6 During this time, Colorado Pool held a CGL policy with Scottsdale. Consequently, when Founders and White demanded that the pool be replaced, Colorado Pool sought legal advice about its insurance coverage. Colorado Pool also notified Scottsdale of the Founders claim, seeking pre-approval for the cost of demolishing and replacing the pool. Scottsdale's claims adjuster, GAB, assigned the claim to Don Hansen.

¶ 7 Hansen visited the worksite and met with Colorado Pool's attorney, White's project manager, and Kitowski. According to plaintiffs, Hansen stated that the CGL policy would cover losses associated with demolishing and replacing the pool.

¶ 8 Demolition then began. Colorado Pool and Kitowski paid for the work, expecting to be reimbursed. But the reimbursement never came, and they soon ran out of money. White completed the project, billing its costs against Colorado Pool's account.

¶ 9 Almost six weeks after being notified of Colorado Pool's claim, Scottsdale denied coverage. Scottsdale refused to reimburse Colorado Pool or Kitowski for the cost of demolishing and replacing the pool, and it declared that it had no duty to defend them in any action on the claim.

B. The Arbitration

¶ 10 In 2006, White initiated arbitration against Colorado Pool. After some negotiation, Colorado Pool confessed liability in the amount of $133,500. Colorado Pool satisfied that judgment.

C. The Lawsuit Here

¶ 11 In 2008, Colorado Pool and Kitowski sued Scottsdale, GAB, and Hansen. (For the sake of simplicity, when discussing events that concern GAB and Hansen equally, we will refer to these two defendants as GAB/Hansen.)

¶ 12 Plaintiffs asserted the following claims: (1) under the terms of the contract, Scottsdale had a duty to defend and indemnify on the underlying insurance claim; (2) Scottsdale was estopped from denying coverage because plaintiffs had relied on statements made by Hansen, acting as Scottsdale's claims adjustor; (3) Scottsdale had acted in bad faith in denying the insurance claim; and (4) GAB/Hansen was liable for negligently misrepresenting that the claim would be covered.

¶ 13 Scottsdale and GAB/Hansen each sought summary judgment:

1. Scottsdale asserted these arguments: (1) there is no coverage under the policy because faulty workmanship is not an “occurrence” and because “property damage” does not include the cost of replacing defective work; (2) the insurance claim is defeated by certain policy exclusions; (3) Scottsdale cannot be estopped from denying coverage because plaintiffs did not reasonably rely on Hansen's statements; (4) plaintiffs' bad faith claim fails because it is time barred and because Scottsdale's actions were reasonable.

2. GAB/Hansen asserted these arguments: (1) if plaintiffs relied on Hansen's statements, their reliance was not justifiable; (2) plaintiffs incurred no damages in relying on the statements; and (3) the negligent misrepresentation claim was time barred.

¶ 14 The trial court denied both motions. It found genuine issues of material fact about the existence and extent of coverage, the date on which plaintiffs' claims accrued, and the reasonableness of any reliance on Hansen's statements.

¶ 15 Later, plaintiffs directed the court's attention to the newly enacted Construction Professional Commercial Liability Insurance Act (Builders Insurance Act), which is now codified at section 13–20–808, C.R.S.2012. Relying on this statute, plaintiffs moved for summary judgment on the coverage issue.

¶ 16 Scottsdale responded to plaintiffs' request and renewed its motion for summary judgment. It argued that the statute cannot be retroactively applied here. It also argued, relying on an affidavit from Colorado Pool's project supervisor, that plaintiffs had expected the pool to be defective.

¶ 17 The court granted Scottsdale's renewed motion. It ruled that the Builders Insurance Act does not apply retroactively and that Scottsdale's policy did not cover the claimed damages. (The court did not address plaintiffs' estoppel claim, presumably because Scottsdale did not challenge that claim in its motion.)

¶ 18 Thereafter, GAB/Hansen filed a renewed motion for summary judgment. GAB/Hansen argued that, in the absence of coverage under the policy, plaintiffs could not have justifiably relied on Hansen's alleged statements. The court granted that motion, too.

¶ 19 Plaintiffs now challenge both judgments. We first address the court's judgment in favor of Scottsdale. We then address the judgment in favor of GAB/Hansen.

II. Standard of Review

¶ 20 We review both judgments de novo. We will affirm only if there is no genuine issue of material fact and if defendants are entitled to judgment as a matter of law. See West Elk Ranch, L.L.C. v. United States, 65 P.3d 479, 481 (Colo.2002).

III. Summary Judgment for Scottsdale

¶ 21 Plaintiffs contend that the court erred in ruling that the alleged damage did not arise from an “accident,” as that term is used in the policy. To evaluate that contention, we must identify both the pertinent policy language and the principles that govern its interpretation. The latter inquiry is complicated by a dispute about the source of the governing law: plaintiffs assert that the policy must be interpreted under the Builders Insurance Act, while Scottsdale maintains that the interpretation is governed by common law principles.

¶ 22 We agree with Scottsdale that the matter must be decided under the common law. However, we conclude that the court interpreted the policy incorrectly, and for this reason we reverse the court's summary judgment and remand for further proceedings on plaintiffs' claims.

A. The Policy Language

¶ 23 Standard CGL policy forms are developed and published by the Insurance Services Office, Inc. See French v. Assurance Co., 448 F.3d 693, 700 (4th Cir.2006). These forms are widely used in the insurance industry.As the needs of the industry change, the Insurance Services Office revises the forms. A major revision to the CGL form was published in 1986. Id.

¶ 24 Here, the CGL policy tracks the standard 1986 version:

1. Subject to limited exceptions, the policy covers “property damage” that is “caused by an ‘occurrence’ that takes place in the ‘coverage territory’ ... during the policy period.”

2. “Property damage” is defined as “physical injury to tangible property, including all resulting loss of use of that property” or “loss of use of tangible property that is not physically injured.”

3. “Occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (The policy does not define “accident.”)

B. The Builders Insurance Act

¶ 25 Section 13–20–808 was enacted in response to General Security Indemnity Co. v. Mountain States Mutual Casualty Co., 205 P.3d 529 (Colo.App.2009). In that case, a division of this court held that faulty workmanship, standing alone, is not an “accident.”

¶ 26 In enacting the statute, the legislature declared that General Security “does not properly consider a construction professional's reasonable expectation that an insurer would defend the construction professional against an action or notice of claim.” § 13–20–808(1)(b)(III). The legislature sought to correct this deficiency by creating an interpretive presumption:

(3) In...