United Fire & Cas. Co. v. Boulder Plaza Residential Llc

• Decision Date: 27 January 2011
• Docket Number: Nos. 10–1056,10–1075.,s. 10–1056
• Citation: 633 F.3d 951
• Court: U.S. Court of Appeals — Tenth Circuit
• Parties: UNITED FIRE & CASUALTY COMPANY, an Iowa corporation, Plaintiff–Counterclaim Defendant–Appellee/Cross–Appellant,v.BOULDER PLAZA RESIDENTIAL, LLC, a Colorado limited liability company, Defendant–Counterclaim Plaintiff–Appellant/Cross–Appellee.

633 F.3d 951

UNITED FIRE & CASUALTY COMPANY, an Iowa corporation, Plaintiff–Counterclaim Defendant–Appellee/Cross–Appellant,

v.BOULDER PLAZA RESIDENTIAL, LLC, a Colorado limited liability company, Defendant–Counterclaim Plaintiff–Appellant/Cross–Appellee.

Nos. 10–1056

10–1075.

United States Court of Appeals, Tenth Circuit.

Jan. 27, 2011.

George V. Berg, Jr. (Heidi C. Potter, and Judy B. Snyder with him on the briefs), Berg Hill Greenleaf & Ruscitti LLP, Boulder, CO, for the Plaintiff–Counterclaim Defendant–Appellee/Cross–Appellant.Elizabeth C. Moran (Michael S. Drew, and Kevin P. Ahearn with her on the briefs), Pryor Johnson Carney Karr Nixon, P.C., Greenwood Village, CO, for the Defendant–Counterclaim Plaintiff–Appellant/Cross–Appellee.Before LUCERO, BALDOCK, and HOLMES, Circuit Judges.LUCERO, Circuit Judge.

Boulder Plaza Residential, LLC (“BPR”) appeals the district court's grant of summary judgment for United Fire & Casualty Co. (“UFC”). In its order granting summary judgment, the district court held that under Colorado law, UFC, an insurer, owed no duty of defense, nor duty of indemnification. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

I

A

BPR, a real estate developer, and McCrery & Roberts Construction Co. (“M & R”), entered into a contract (“the General Contract”), in which M & R agreed to serve as the general contractor for the interiors of condominiums BPR was building in Boulder, CO. In the General Contract, M & R agrees to indemnify BPR:

[F]rom and against claims, damages, losses, and expenses ... arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom, but only to the extent caused in whole or in part by negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder.

M & R then entered into a subcontract with Summit Flooring, LLC (“Summit”), whereby Summit agreed to install the hardwood floors in the condominiums. In the subcontract, Summit agreed “to indemnify and save [M & R] harmless against all claims for damage to persons and property growing out of the execution of the work, including any costs and fees incurred by [M & R], should any claims be made.”

Summit also obtained Commercial General Liability (“CGL”) insurance policies from UFC, in which UFC agrees to pay for “bodily injury” or “property damage” caused by any “occurrence” which subjects Summit to liability. M & R, as the general contractor, was listed as an Additional Insured in the policies' Additional Insured Endorsements, which define the scope of coverage as follows:

Section II—Who Is An Insured is amended to include as an insured the person or organization shown in the Schedule [M & R], but only with respect to your [Summit's] liability which may be imputed to that person or organization directly arising out of your ongoing operations performed for that person or organization. A person's or organization's status as an insured under this endorsement ends when your operations for that insured are completed.

The policies also contain a coverage grant under which UFC agrees to pay “sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies,” and which establishes UFC's “right and duty to defend the insured against any ‘suit’ seeking those damages.”

Although the CGL policies exclude contractually assumed liability, they also contain two exceptions to that exclusion, providing coverage for damages: “(1) [t]hat the insured would have in the absence of a contract or agreement; or (2) [a]ssumed in a contract or agreement that is an ‘insured contract’ ” entered into before the damages occur. “Insured contract” is defined in pertinent part as a contract “under which you assume the tort liability of another party to pay for ‘bodily injury’ or ‘property damage’ to a third person or organization.”

B

Shortly after the sale of the Boulder condominiums, their new owners notified BPR of damage to the floors of the units. BPR, in turn, notified M & R. M & R's and Summit's subsequent efforts to repair the floors were unsuccessful. BPR sent M & R a notice of loss relating to the floor installation, which M & R forwarded to Summit. M & R then sent UFC a formal notice of claim and demand for indemnification as an Additional Insured under the CGL policies.

UFC investigated M & R's claim and concluded that the physical damage to the floors was caused by excessive moisture in the concrete floor and the wood floors at the time of installation, but that Summit's “work and floor adhesion was sound.” UFC therefore denied coverage to M & R.

BPR filed a lawsuit in Boulder County District Court against M & R and Summit, alleging various claims, including breach of contract and negligence, relating to the installation of the wood floors by Summit. The owners of the condominiums also filed suit against M & R, Summit, and BPR. The two lawsuits were eventually consolidated. M & R notified UFC of the condominium owners' complaint against it and requested defense and indemnification under the CGL policies listing M & R as an additional insured. UFC responded with a letter in which it “den[ied] the tender of defense and indemnification to defend [M & R] related to the work performed by Summit” because the policy only covered M & R with respect to “ongoing operations.”

C

While the state action was pending, UFC filed this action in federal court, seeking a declaratory judgment that it had no duty to defend nor to indemnify M & R in state court. M & R subsequently settled the construction defect lawsuit, and assigned its claims against UFC to BPR. BPR, as M & R's assignee, filed counterclaims against UFC in this suit, alleging breach of the insurance contract and bad faith. BPR also pursued M & R's cross-claims against Summit through trial in state court, which resulted in the jury finding that Summit was not negligent and was not liable for the damages alleged by BPR.

In the declaratory action, UFC and BPR filed cross-motions for summary judgment on the issue of UFC's duty to defend M & R. UFC argued that it had no duty to defend M & R because M & R's coverage as an additional insured was limited to imputed liability arising out of the “ongoing operations” of UFC's named insured, Summit. That obligation ceased once Summit's operations were completed. According to UFC, the complaints in the underlying action alleged that damage to the floors was first observed only after Summit had completed installation. As the endorsement did not cover M & R for liability arising out of completed operations, UFC contended that it had no duty to defend M & R.

The district court denied UFC's motion, and granted summary judgment for BPR, ruling that the complaints sufficiently alleged damage to the floors during improper installation, thereby triggering a duty to defend M & R under the UFC policy. UFC's motion for reconsideration was denied.

Next, the parties filed summary judgment cross-motions on the issue of UFC's duty to indemnify M & R. On that issue, the district court granted BPR's motion and held that UFC was obligated to indemnify M & R for liability under the CGL policies.

UFC then filed a second motion for reconsideration of the duty-to-defend order, based primarily on a subsequent decision by the Colorado Court of Appeals, General Security Indemnity Co. of Arizona v. Mountain States Mutual Casualty Co., 205 P.3d 529 (Colo.App.2009). UFC's motion for reconsideration was granted in part on the ruling that, under General Security, the complaints alleged only damages from faulty workmanship and there was therefore no “occurrence” within the definition of UFC's policy. As a consequence, the district court concluded neither UFC's duty to indemnify, nor its duty to defend was triggered. BPR filed a notice of appeal and UFC filed a notice of a conditional cross-appeal.

II

We review the district court's grant of summary judgment de novo. Shero v. City of Grove, 510 F.3d 1196, 1200 (10th Cir.2007). Summary judgment is appropriate if “there is no genuine issue as to any material fact and the movant is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(a).

We also review the district court's interpretation of Colorado law de novo. Mincin v. Vail Holdings, Inc., 308 F.3d 1105, 1108–09 (10th Cir.2002). Under Colorado law, the interpretation of an insurance contract is a matter of law and is therefore reviewed de novo. Compass Ins. Co. v. City of Littleton, 984 P.2d 606, 613 (Colo.1999).

III

A

Under Colorado law, the duty of an insurer to defend its insured (or additional insured) is distinct from its duty to indemnify the insured. Hecla Mining Co. v. N.H. Ins. Co., 811 P.2d 1083, 1086 n. 5 (Colo.1991). “The duty to defend concerns an insurance company's duty to affirmatively defend its insured against pending claims.” Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 299 (Colo.2003) (quotation omitted). In contrast, the:

“[D]uty to indemnify relates to the insurer's duty to satisfy a judgment entered against the insured. Because the duty to defend encompasses any potential claims raised by the facts and the duty to indemnify relates to the actual liability imposed, [the Colorado Supreme Court] has considered the duty to defend to be a broader concept than the duty to indemnify.”

Id. (citations omitted).

“An insurer seeking to avoid its duty to defend an insured bears a heavy burden.” Hecla, 811 P.2d at 1089. “The actual liability of the insured to the claimant is not the criterion which places upon the insurance...