Bolt Factory v. Auto-Owners Ins ( 2019 )

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.
SUMMARY
August 1, 2019
2019COA121
No. 18CA1201, Bolt Factory v. Auto-Owners Ins. — Insurance —
Settlement and Release Agreements; Civil Procedure —
Intervention of Right
A division of the court of appeals considers a common but
novel issue not decided by a previous Colorado case: whether an
insurer’s interest is contingent, for purposes of a C.R.C.P. 24(a)(2)
motion to intervene as a matter of right, where the insurer reserves
the right to deny coverage. Because the insurer’s interest here was
contingent, the division concludes that the trial court properly
denied the motion to intervene as a matter of right.
COLORADO COURT OF APPEALS 2019COA121
Court of Appeals No. 18CA1201
City and County of Denver District Court No. 16CV33608
Honorable J. Eric Elliff, Judge
Bolt Factory Lofts Owners Association Inc., a Colorado nonprofit corporation,
Plaintiff-Appellee,
v.
Auto-Owners Insurance Company,
Intervenor-Appellant.
ORDER AFFIRMED
Division VI
Opinion by JUDGE FOX
Freyre and Welling, JJ., concur
Announced August 1, 2019
Burg Simpson Eldredge Hersh & Jardine, P.C., Mari K. Perczak, Thomas W.
Henderson, Joseph F. Smith, Nelson Boyle, Englewood, Colorado, for Plaintiff-
Appellee
The Hustead Law Firm, A Professional Corporation, Patrick Q. Hustead,
Connor L. Cantrell, Denver, Colorado, for Intervenor-Appellant
¶1 Insurer, Auto-Owners Insurance Company (AOIC), appeals the
trial court’s order denying its motion to intervene following a
settlement agreement reached by its insured, Sierra Glass Co., Inc.
(Sierra Glass), and plaintiff, Bolt Factory Loft Owners Association
Inc. (the Association). We affirm the trial court’s order.
I. Background
¶2 This insurance dispute originated from a construction defects
case in which the Association sued six contractors for alleged
construction defects at one of its Denver condominium projects.
Two of those contractors then asserted negligence and breach of
contract third-party claims against several subcontractors,
including Sierra Glass, on November 7, 2016. Following a series of
settlement agreements, the only remaining claims were those the
Association, as assignee of the two contractors, asserted against
Sierra Glass.
¶3 AOIC had issued insurance policies to Sierra Glass and
defended Sierra Glass under a reservation of rights. AOIC refused
to pay a $1.9 million settlement demand the Association presented
to Sierra Glass on or about May 2, 2018. As a result, Sierra Glass
entered into an agreement with the Association under which,
1
according to AOIC, Sierra Glass would refrain from offering a
defense at trial (and the scheduled fifteen-day jury trial was
reduced to a two-day bench trial) in exchange for the Association’s
promise that it would not pursue recovery against Sierra Glass.
Sierra Glass also agreed to assign any bad faith claims it had
against AOIC to the Association. AOIC learned of this agreement
the day before the jury trial was scheduled to start on May 4, 2018.
¶4 On May 9, 2018, when the bench trial actually started, AOIC
filed a motion to intervene, continue the trial, contest the settlement
agreement, and protect its rights under the insurance policies.
Following a hearing, 1 the trial court determined that the settlement
agreement was valid under Nunn v. Mid-Century Insurance Co., 244
P.3d 116 (Colo. 2010). 2 The court denied AOIC’s motion to
1 The hearing was held on May 9, 2018, before a different judge
than the one assigned to try the case.
2 In Nunn v. Mid-Century Insurance Co., our supreme court
sanctioned an agreement between a plaintiff and a defendant-
insured under the following circumstances:
[W]hen it appears that the insurer — who has
exclusive control over the defense and
settlement of claims pursuant to the insurance
contract — has acted unreasonably by refusing
to defend its insured or refusing a settlement
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intervene, concluding that AOIC’s claims were contingent on the
outcome of trial and that AOIC could test coverage issues in a
subsequent declaratory judgment action.
¶5 During the bench trial, the Association called four witnesses
and delivered opening and closing statements. Sierra Glass did not
present a defense. The trial court found in favor of the Association
and entered a judgment for $2,489,021.91.
¶6 The Association then obtained a writ of garnishment against
AOIC, and AOIC removed that action to federal district court. On
June 11, 2019, the district court stayed the motion for garnishment
offer that would avoid any possibility of excess
liability for its insured, the insured may take
steps to protect itself from potential exposure
to such liability. One way for an insured to
protect itself is through the use of an
agreement whereby the insured assigns its bad
faith claims to the third party, and in exchange
the third party agrees to pursue the insurer
directly for payment of the excess judgment
rather than the insured.
244 P.3d 116, 119 (Colo. 2010) (first citing Old Republic Ins. Co. v.
Ross, 180 P.3d 427, 433-34 (Colo. 2008); and then citing Northland
Ins. Co. v. Bashor, 177 Colo. 463, 466, 494 P.2d 1291, 1294
(1972)). A Nunn agreement thus allows an insured to “take
affirmative steps to avoid the potentially disastrous effects of its
insurer’s bad faith.” Id. at 122.
3
pending the resolution of this appeal challenging the trial court’s
denial of its motion to intervene. AOIC also filed a declaratory
judgment action in federal district court against Sierra Glass
seeking a declaration that (1) it did not owe obligations or payments
under the insurance policies; (2) Sierra Glass breached the policy
by failing to cooperate with AOIC; and (3) the state court judgment
is not enforceable. The Association and Sierra Glass asserted
counterclaims for breach of contract and third-party statutory and
common law bad faith claims. Because of this pending appeal, the
federal district court dismissed the declaratory relief claim and the
counterclaims without prejudice.
II. Jurisdiction
¶7 We first conclude that our jurisdiction over this appeal is
proper. While there was a question if the removal of the
garnishment action to federal district court constituted a removal of
the entire case, see 28 U.S.C. § 1446(d) (2018) (after filing a notice
of removal of a civil action, the state court shall proceed no further),
the garnishment action is a separate proceeding and the federal
district court has stayed the proceeding. Therefore, we have
jurisdiction over the appeal of this proceeding. See Mascarenas
4
Enters., Inc. v. City of Albuquerque, 494 F. App’x 846, 850 (10th Cir.
2012) (“Removal of a state court case to federal court takes that
case out of the state court’s reach unless and until it is returned to
the state court.” (citing 28 U.S.C. § 1446(d))).
III. Procedural Defect
¶8 We now turn to whether AOIC’s motion to intervene was
procedurally defective. C.R.C.P. 24(c) provides that a motion to
intervene “shall be accompanied by a pleading setting forth the
claim or defense for which intervention is sought.” But, where a
party’s motion states the grounds and facts upon which
intervention is sought and the opposing party is given a fair
opportunity to respond, a failure to comply precisely with the rule is
not detrimental to the opposing party’s substantial rights. Weston
v. T & T, LLC, 271 P.3d 552, 555-56 (Colo. App. 2011) (concluding
that a trial court has discretion to determine whether a would-be
intervenor has satisfied the procedural requirements of Rule 24(c),
and whether to permit intervention on a procedurally defective
motion). While it is undisputed that AOIC’s motion was not
accompanied by a pleading and so did not comply with Rule 24(c),
AOIC’s motion to intervene detailed the basis for the requested
5
intervention, and the Association was able to respond at the
hearing. Thus, the trial court did not abuse its discretion in
considering the procedurally defective motion. Id. at 556.
IV. Motion to Intervene
¶9 AOIC contends that the trial court erred in denying its motion
to intervene because it met all three requirements for intervention
as a matter of right. 3 We disagree.
A. Standard of Review and Applicable Law
¶ 10 We review de novo the denial of a motion to intervene as of
right under C.R.C.P. 24(a). Feigin v. Alexa Grp., Ltd., 19 P.3d 23, 28
(Colo. 2001).
¶ 11 Rule 24(a)(2) provides for intervention as a matter of right
where (1) the applicant claims an interest in the subject matter of
the litigation; (2) disposition of the action may impair or impede the
applicant’s ability to protect that interest; and (3) the applicant’s
3 Though AOIC’s briefs attack the validity of the Nunn agreement,
they do not argue that we should decide its validity, and so we do
not address the issue. See C.A.R. 28(a)(4) (appellant’s brief must
contain statement of the issues presented for review). And to the
extent the parties challenge certain attachments as not being part
of the record, there is no dispute that AOIC issued a reservation of
rights letter, and the record contains ample references thereto.
6
interest is not adequately represented by existing parties. Id. at
26.4 While “Rule 24 should be liberally interpreted to allow,
whenever possible and compatible with efficiency and due process,
issues related to the same transaction to be resolved in the same
lawsuit and at the trial court level,” Feigin, 19 P.3d at 26, every
element must be satisfied, and the failure to satisfy one element of
Rule 24(a)(2) precludes a motion to intervene as of right, see
Diamond Lumber, Inc. v. H.C.M.C., Ltd., 746 P.2d 76, 78 (Colo. App.
1987).
B. Interest in the Litigation
¶ 12 In determining whether one has an interest in intervening
under Rule 24(a)(2), Colorado courts take a “flexible approach.”
Feigin, 19 P.3d at 29. “The existence of an interest ‘should be
determined in a liberal manner.’ The interest prong ‘is primarily a
practical guide to disposing of lawsuits by involving as many
apparently concerned persons as is compatible with efficiency and
4 Timeliness is a threshold question in considering a motion to
intervene. Law Offices of Andrew L. Quiat, P.C. v. Ellithorpe, 917
P.2d 300, 303 (Colo. App. 1995). Because timeliness is not
challenged on appeal, and because the intervention was denied on
other grounds, we consider the merits of AOIC’s claim.
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due process.’” Cherokee Metro. Dist. v. Meridian Serv. Metro. Dist.,
266 P.3d 401, 404 (Colo. 2011) (citations omitted).
¶ 13 But, if the interest is contingent, it may be insufficient to
warrant intervention. See J.E.S. v. F.F., 762 P.2d 703, 706 (Colo.
App. 1988) (concluding that a department of social services’ interest
in support obligations owed to a child was contingent on the
paternity action); Restor-A-Dent Dental Labs., Inc. v. Certified Alloy
Prods., Inc., 725 F.2d 871, 875 (2d Cir. 1984) (affirming denial of
motion to intervene where insurer’s interest depended on two
contingencies).
¶ 14 Where an insurer reserves the right to deny coverage, “the
insurer’s interest in the liability phase of the proceeding is
contingent on the resolution of the coverage issue.” Travelers
Indem. Co. v. Dingwell, 884 F.2d 629, 638 (1st Cir. 1989);5 see also
5 AOIC argues that Colorado’s duty to defend scheme and
regulatory framework for bad faith necessarily conflicts with
Travelers Indemnity Co. v. Dingwell, 884 F.2d 629, 638 (1st Cir.
1989), but we agree with the Association’s position that this
interpretation runs contrary to Nunn, which specifically allows an
insured to protect itself when an insurer balks at its duty to settle.
See also Arline v. Am. Family Mut. Ins. Co., 2018 COA 82, ¶ 19
(“Colorado public policy favors the settlement of disputes when the
settlement is fairly reached.”).
8
Restor-A-Dent Dental Labs., 725 F.2d at 874-76. But see Design
Basics, LLC v. Estate of Aus, No. 12-2437-JPO, 2014 WL 65754, at
*3 (D. Kan. Jan. 8, 2014) (granting insurers’ motions to intervene
following City of Stilwell v. Ozarks Rural Electric Cooperative
Corp., 79 F.3d 1038 (10th Cir. 1996), and rejecting other circuits’
strict views to conclude that not every contingent interest fails to
satisfy Fed. R. Civ. P. 24(a)(2), and noting that, while the insurers
are affected only if there were coverage for the injured party’s
claims, denying intervention would increase the likelihood of an
adverse impact on the insurers). A reservation of rights is typically
considered to be a contingent interest because “an insurer who
reserves the right to deny coverage cannot control the defense of a
lawsuit brought against its insured by an injured party.” Dingwell,
884 F.2d at 639 (“Allowing the insurer to intervene to protect its
contingent interest would allow it to interfere with and in effect
control the defense. Such intervention would unfairly restrict the
insured, who faces the very real risk of an uninsured liability, and
grant the insurer ‘a double bite at escaping liability.’”) (citation
omitted).
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¶ 15 Here, it is undisputed that AOIC reserved the right to deny
coverage. Thus, its interest in the litigation was contingent on the
liability phase of the proceedings and so it failed to satisfy prong
one of Rule 24(a)(2). See Dingwell, 884 F.2d at 638; J.E.S., 762
P.2d at 706. While AOIC asserts that the Nunn agreement negated
the liability phase, such agreements are allowed in Colorado, and
Sierra Glass was entitled to protect itself in the face of AOIC’s
potential denial of coverage and refusal to settle. See Nunn, 244
P.3d at 119. Because AOIC failed to meet the first prong of Rule
24(a)(2), the court properly denied its motion to intervene. See
Diamond Lumber, 746 P.2d at 78.6
6 We also agree with the trial court’s conclusion that AOIC can
sufficiently protect its interests in a subsequent declaratory
judgment action regarding coverage. AOIC’s initial filing was
dismissed without prejudice thus it can reassert the claims once
these state court appellate proceedings have concluded. Cf. Mauro
v. State Farm Mut. Auto. Ins. Co., 2013 COA 117, ¶ 17 (concluding
that insurer had no other alternative to challenge a protective order
than to request intervention). Moreover, if AOIC believes the
settlement between Sierra Glass and the Association was collusive,
it can challenge that in the coverage case. See Sidman v. Travelers
Cas. & Sur., 841 F.3d 1197, 1203-04 (11th Cir. 2016) (concluding
that insurer was not bound by settlement agreement between
insured and injured party where the agreement was produced
through fraud or collusion); see also Nunn, 244 P.3d at 123.
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V. Conclusion
¶ 16 We affirm the trial court’s order denying AOIC’s motion to
intervene.
JUDGE FREYRE and JUDGE WELLING concur.
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