DC-10 Entm't, LLC v. Manor Ins. Agency, Inc.

• Decision Date: 14 February 2013
• Docket Number: Court of Appeals No. 11CA2637
• Citation: 308 P.3d 1223
• Parties: DC–10 ENTERTAINMENT, LLC, n/k/a LLMJ, LLC, a Colorado corporation, Plaintiff–Appellant, v. MANOR INSURANCE AGENCY, INC., a Colorado Corporation, Defendant–appellee.
• Court: Colorado Court of Appeals

308 P.3d 1223

DC–10 ENTERTAINMENT, LLC, n/k/a LLMJ, LLC, a Colorado corporation, Plaintiff–Appellant,

v.MANOR INSURANCE AGENCY, INC., a Colorado Corporation, Defendant–appellee.

Court of Appeals No. 11CA2637

Colorado Court of Appeals, Div. IV.

Announced February 14, 2013

City and County of Denver District Court No. 10CV8631; Honorable Michael A. Martinez, Judge.

Roberts Levin Rosenberg, P.C., Bradley A. Levin, Jeremy A. Sitcoff, Denver, Colorado, for Plaintiff–Appellant.

Hall & Evans, L.L.C., Michael W. Jones, Alan Epstein, Denver, Colorado, for Defendant–Appellee.

Opinion by JUDGE FOX

¶ 1 Plaintiff, DC–10 Entertainment, LLC (DC–10), appeals the trial court's summary judgment in favor of defendant, Manor Insurance Agency, Inc. (Manor). We reverse and remand for further proceedings.

I. Background

¶ 2 Constadinos Kouremenos owned and operated DC–10, a nightclub and lounge. He obtained insurance coverage for DC–10 through Manor, an independent insurance broker that services multiple insurance companies. Manor had previously obtained insurance coverage for two other nightclubs owned and operated by Kouremenos. Through Manor, DC–10 procured a commercial general liability policy with Penn–Star Insurance Company (Penn–Star), and a liquor liability policy with Founders Insurance Company (Founders).

¶ 3 Heaven Henderson suffered injuries when she was physically assaulted by an unknown assailant on DC–10's premises. Henderson sued DC–10. DC–10 then submitted claims to Penn–Star and Founders for defense and indemnity coverage. Penn–Star denied coverage because its policy with DC–10 contained an “assault and battery exclusion.” The policy with Founders also contained such an exclusion, but Founders agreed to provide DC–10 with a defense under a reservation of rights.

¶ 4 DC–10 settled with Henderson. Pursuant to the settlement agreement, DC–10 would pay Henderson $15,000, contributed by Founders, and an arbitration judge would determine any further damages. Additionally, DC–10 assigned Henderson its rights to any proceeds recovered in a negligence lawsuit against Manor, in exchange for Henderson's agreement not to execute on her judgment against DC–10. Following the arbitration judge's award to Henderson, a judgment on the award was entered against DC–10.

¶ 5 DC–10 sued Manor asserting, as relevant here, claims of negligence and negligent misrepresentation. DC–10 alleged that, based on its prior relationship with Manor and DC–10's request for assault and battery coverage, Manor had a legal duty to obtain appropriate insurance, including for assault and battery, and that Manor failed to inform DC–10 that its insurance would not cover an on-premises assault. The court granted Manor's motion for summary judgment on the ground that the settlement agreement was insufficient to establish that DC–10 incurred damages resulting from Manor's negligence and negligent misrepresentation.

II. Standard of Review

¶ 6 An appellate court reviews de novo a trial court's grant of summary judgment. Shelter Mutual Ins. Co. v. Mid–Century Ins. Co., 246 P.3d 651, 657 (Colo.2011). Summary judgment will be granted only where there are no genuine disputed issues of material fact. Natural Energy Res. Co. v. Upper Gunnison River Water Conservancy Dist., 142 P.3d 1265, 1276 (Colo.2006). We view all facts in the light most favorable to the nonmoving party. Id.

III. Settlement Agreement and Damages

¶ 7 Claims of negligence and negligent misrepresentation require a showing that the plaintiff suffered damages caused by the defendant's negligent actions or inactions. See Keller v. Koca, 111 P.3d 445, 447 (Colo.2005) (negligence); Nelson v. Gas Research Institute, 121 P.3d 340, 345 (Colo.App.2005) (negligent misrepresentation). DC–10 contends that the trial court erred in determining that the settlement agreement was insufficient to establish that DC–10 incurred damages. We agree.

¶ 8 In Northland v. Bashor, the supreme court upheld the validity of an agreement where an insured agreed to pursue claims against its insurance provider and share any recovery with the original plaintiff. 177 Colo. 463, 465, 494 P.2d 1292, 1293 (1972). In exchange, the plaintiff agreed not to execute on the judgment against the insured's assets. Since that case, the term “Bashor agreement” has been used to describe

a settlement reached between opposing parties after a judgment has been obtained against the defendant. The prevailing party agrees not to execute on the judgment in exchange for the defendant's agreement not to appeal the judgment and instead to pursue claims against third parties (and share any recovery with the original plaintiff).

Stone v. Satriana, 41 P.3d 705, 708 n.2 (Colo.2002). The term has also been used to describe an agreement where the defendant assigns a claim against the insurer to the plaintiff. Old Republic Ins. Co. v. Ross, 180 P.3d 427, 431 (Colo.2008).

¶ 9 DC–10 and Henderson's settlement agreement provides, in relevant part:

? DC–10 shall pay to Ms. Henderson the sum of $15,000, contributed by Founders, in partial settlement sought by Ms. Henderson in the Lawsuit.

? Any further damages arising from the claims in the Lawsuit, above the [$15,000 paid by Founders] shall be determined in a proceeding before [a designated arbitration judge].... The parties agree that [the judge's] damages determination shall be binding and non-appealable, and shall be entered as a judgment in the Lawsuit.

? DC–10 has previously initiated a proceeding against Manor [Insurance] to recover the full amount of the judgment obtained in the [Henderson] Lawsuit as well as all other damages resulting from Manor's conduct. That action, filed in the District Court for the City and County of Denver, Colorado Case No.2010CV8631, includes claims for negligence, negligent misrepresentation, and breach of fiduciary duty (hereinafter referred to as the “Negligence Action”).

? DC–10 hereby assigns to Ms. Henderson all rights, title, and interest it may have to proceeds, if any, recovered in the Negligence Action in collection of the judgment entered against DC–10 in the Lawsuit. DC–10 specifically retains its title and interest in, and the right to prosecute, claims for all other damages it has suffered due to Manor's wrongful conduct.

? Ms. Henderson shall be responsible for payment of costs incurred in the Negligence Action.

? The parties agree that no settlement will be reached in the Negligence Action without the express consent of all of the parties hereto. The parties also agree [not to] unreasonably withhold consent to settlement of the Negligence Action.

? Any recovery in the Negligence [Action], after deduction of attorney fees and costs, shall be distributed as follows:

? Ms. Henderson shall receive the unpaid amount of the judgment in the lawsuit, including postjudgment interest, until fully paid;

? DC–10 shall then be paid any compensatory damages after the full judgment amount, including post -judgment interest, has been paid; and,

? DC–10 ... and Ms. Henderson ... shall each receive 50 percent of all punitive damages awarded.

? So long as DC–10 fully and in good faith performs its obligations under this Agreement, Ms. Henderson covenants and agrees not to, directly or indirectly, execute or otherwise attempt to enforce or collect on any judgment resulting from the Lawsuit against DC–10.

? In the event this Agreement, or any part of it, is determined to be unenforceable, no party shall have any rights to pursue any claims or collect any amounts from any other party as a consequence of that determination.

? The parties expressly intend that the validity of this contract shall be determined by application of the Colorado Supreme Court's decision in Bashor v. Northland Ins. Co., 480 P.2d 864 (1970), and Nunn v. Mid–Century Ins. Co., 244 P.3d 116 ( [Colo.] 2010).[sic]

¶ 10 The trial court determined that the agreement was similar to the agreement at issue in Serna v. Kingston Enterprises, where a division of this court affirmed the dismissal of a common law indemnity claim. 72 P.3d 376, 381 (Colo.App.2002). In that case, an employee, while driving for her employer, collided with another vehicle. Id. at 378. The passengers of the other vehicle sued the employee to recover for injuries sustained in the accident. Id. As part of a settlement agreement, the parties agreed to a consent judgment for stipulated damages, with the employee to pursue her indemnity claim against her employer. Id. at 382. The employee agreed to select the passengers' attorney to represent her in the indemnity claim, and to grant the passengers sole discretion to pursue, settle, or appeal. Id. In exchange, the passengers agreed not to execute against the employee on the consent judgment, to pay all attorney fees, costs, and expenses arising from the indemnity claim, and to share any funds recovered from the employer in excess of $1 million. Id.

¶ 11 The Serna division explained that the agreement was distinguishable from a valid Bashor agreement because there was no enforceable judgment against the employee, and “the only judgment against her [was] one to which she stipulated, along with conditions virtually ensuring her that it would never be enforced against her.” Id. at 381. The division also observed that the agreement was “more akin to a profit-sharing agreement,” than a Bashor agreement. Id.

¶ 12 Six years after Serna, the supreme court addressed the validity of pretrial stipulated judgments in Old Republic, 180 P.3d at 430–35. The court declined to hold that such judgments are per se unenforceable, because under some circumstances a stipulated judgment is a defendant insured's only viable recourse against an insurer that has acted in bad faith. Id. at 433. The court addressed the Serna division's concern that pretrial stipulated judgments are “profit-sharing” agreements, and concluded that the risk of collusion was justified in light of the relative position of the parties. Id. at...