Stresscon Corp. v. Travelers Prop. Cas. Co. of Am.

• Citation: 2013 COA 131,373 P.3d 615
• Decision Date: 12 September 2013
• Docket Number: Court of Appeals Nos. 11CA1239 & 11CA1582
• Parties: STRESSCON CORPORATION, a Colorado corporation, Plaintiff–Appellee and Cross–Appellant, v. TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, a Connecticut company, Defendant–Appellant and Cross–Appellee.
• Court: Court of Appeals of Colorado

373 P.3d 615

2013 COA 131

STRESSCON CORPORATION, a Colorado corporation, Plaintiff–Appellee and Cross–Appellant

v.TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, a Connecticut company, Defendant–Appellant and Cross–Appellee.

Court of Appeals Nos. 11CA1239 & 11CA1582

Colorado Court of Appeals, Div. VII.

Announced September 12, 2013

Sherman & Howard L.L.C., Bret R. Gunnell, Katherine D. Varholak, Brooke Yates, Matthew O. Stromquist, Denver, Colorado, for Plaintiff–Appellee and Cross–Appellant

Montgomery, Kolodny, Amatuzio & Dusbabek, LLP, Kevin Amatuzio, David Fawley, Denver, Colorado; Meckler Bulger Tilson Marick & Pearson, Michael M. Marick, Chicago, Illinois, for Defendant–Appellant and Cross–Appellee

Roberts Levin Rosenberg, PC, Michael J. Rosenberg, Denver, Colorado, for Amicus Curiae The Colorado Trial Lawyers Association

Reubel & Quillen, LLC, Jeffrey Reubel, Casey A. Quillen, Westminster, Colorado, for Amicus Curiae Colorado Defense Lawyers Association

Opinion by JUDGE BERNARD

¶ 1 Along with other issues, the defendant, Travelers Property Casualty Company of America (the insurance company), raises a question in this appeal concerning “no voluntary payment” clauses. These clauses appear in many insurance policies. They prohibit insureds from voluntarily settling claims and making payment, or from assuming certain expenses, without the insurer's consent, at the risk of losing insurance benefits.

¶ 2 The question we must resolve in this appeal is whether an insured's breach of a “no voluntary payment” clause will always bar the insured from receiving benefits. We answer that question “no.”

¶ 3 We base our answer on the notice-prejudice rule, which is described in cases such as Friedland v. Travelers Indemnity Co., 105 P.3d 639, 643 (Colo.2005)

. The notice-prejudice rule provides that (1) if an insured does not provide the insurer with notice of a claim until after the insured has settled; then (2) the insured will lose benefits after the settlement based on a presumption of prejudice; unless (3) the insured rebuts the presumption that the insurer's interests were prejudiced by the lack of notice; and (4) the insurer does not then prove that it was actually prejudiced by the lack of notice. For the reasons we explain below, we hold that the notice- prejudice rule applies to “no voluntary payment” clauses in insurance policies.

¶ 4 On cross-appeal, the plaintiff, Stresscon Corporation (the concrete company), challenges the trial court's decision to reduce its damages award under section 10–3–1116, C.R.S.2012

, and the trial court's decision that certain damages were not covered by the insurance policy. The concrete company also challenges several of the trial court's decisions reducing the attorney fee award, one of which denied its request for the fees and costs it incurred in bringing the fee request, or its “fees-on-fees.” We conclude that the trial court erred when it ruled that the concrete company was not entitled to reasonable “fees-on-fees,” and we remand to the trial court to determine and to award such fees. We further conclude that none of the other trial court's decisions that are questioned by the concrete company on cross-appeal was erroneous.

¶ 5 Therefore, we reverse the part of the judgment in which the trial court denied the concrete company's request for “fees-on-fees,” and we remand to the trial court to determine and award the concrete company its reasonable “fees-on-fees.” We affirm the judgment in all other respects, and we remand the case so that the trial court can determine and award the concrete company's reasonable attorney fees incurred on appeal.

I. Background

¶ 6 This case arose from a construction accident at the Fort Carson Army Base near Colorado Springs. In July 2007, one construction worker was killed and another was gravely injured when sections of a partially erected building collapsed on them. The collapse was caused by a crane hook catching a safety stanchion and pulling one of the concrete components off of its support beams.

¶ 7 The accident led to three lawsuits: (1) one brought by the estate of the deceased construction worker; (2) one brought by the injured worker; and (3) one brought by Mortenson (the general contractor) against the concrete company, its subcontractor, in which the general contractor claimed it was entitled to contract damages incurred because of the length of time that the project was delayed. The parties settled the personal injury lawsuits. This appeal concerns only the insurance company's handling of the general contractor's claim against the concrete company.

¶ 8 As is common in the construction industry, there were layers of contractors involved in this building project. The United States Corps of Engineers hired the general contractor. The general contractor then subcontracted with the concrete company to build pre-cast concrete components. The concrete company hired two sub-sub-contractors, RMS and Hardrock (the crane team), to work together to erect the components with cranes.

¶ 9 The concrete company and the crane team had liability insurance. The concrete company was insured by the insurance company, the defendant in this case. The crane team had primary and excess insurance policies with other insurers. The concrete company required that each of the primary insurance policies for the crane team name the concrete company as an additional insured.

¶ 10 A clause in the contract between the general contractor and the Corps of Engineers stated that the general contractor would be liable for any delay in the project, without regard to the cause of the delay. After the accident, the general contractor notified the concrete company that it expected to be reimbursed for the damages resulting from the delay to the project. The concrete company then informed the insurance company of this claim.

¶ 11 The insurance company responded by sending two reservation-of-rights letters to the concrete company, stating that its policy might not cover the delay damages sought by the general contractor. Later, the insurance company sent a letter to the general contractor on behalf of the concrete company. This letter denied that the concrete company was liable to the general contractor. At this point, the general contractor entered into settlement discussions with the concrete company.

¶ 12 After this series of letters, the general contractor and the concrete company settled their dispute. The concrete company did not, before entering into the settlement, inform the insurance company of the settlement or obtain its consent. The settlement reimbursed the general contractor for the delay damages caused by the accident and for other unrelated damages resulting from the accident that clearly were not covered by the concrete company's insurance policy. Neither party attempted to allocate the settlement between these two categories of damages.

¶ 13 Months later, the concrete company sued the insurance company, along with the crane team and its insurers. This was the first time that the insurance company learned of the settlement. The concrete company asserted that the crane team had breached its contract with the concrete company and that the crane team owed it indemnification for the delay damages that it had paid the general contractor.

¶ 14 In addition to its claims for breach of contract and indemnification against the crane team, the concrete company asserted that, as is pertinent here, the insurance company had, in bad faith, breached its duty to the concrete company and, as a result, had violated section 10–3–1115(1)(a), C.R.S.2012

, by “unreasonably delay[ing] or den[ying]” its claim for benefits. The concrete company alleged that it was due the statutory penalty of “reasonable attorney fees and court costs and two times the covered benefit.” See § 10–3–1116(1), C.R.S.2012.

¶ 15 The trial court bifurcated this case into two phases: (1) the trial against the crane team to determine liability and damages; and (2) the trial against the insurance company and the other insurers on the contractual, bad faith, and section 10–3–1115

and –1116, C.R.S.2012, claims.

¶ 16 The jury in the first trial found that the crane team was liable to the concrete company for $678,826, the amount of damages that the general contractor, and therefore the concrete company, had suffered as a result of the accident. The results of the first trial were not appealed. The insurer for one member of the crane team settled with the concrete company and paid it this amount.

¶ 17 The second trial involved only the insurance company. The jury was asked (1) to decide whether the insurance company had acted unreasonably in denying the concrete company's claim for benefits to cover the amount that it had paid to the general contractor; (2) to decide whether the insurance company had suffered prejudice as a result of the concrete company's settlement with the general contractor; and (3) to apportion the first jury's award among categories of damages, some of which the trial court had already determined were not covered by the insurance policy.

¶ 18 The jury found that the insurance company had unreasonably denied the concrete company's claim, that the insurance company had not been prejudiced by the settlement, and that $546,899 of the first jury award represented the damages that were covered by the insurance policy.

¶ 19 In accordance with section 10–3–1116

, the trial court determined that the insurance company would ordinarily be required to pay the concrete company two times the covered benefit, or $1,093,798. However, the trial court ordered the insurance company to pay the concrete company only $546,899. The court determined that the figure of $1,093,798 should be halved because (1) the jury in the second trial had found that only $546,899 of the award of $678,826 made by the jury in the first trial was covered by the insurance company's policy; and (2) a clause in the insurance policies issued by both the insurance...