Bolt Factory v. Auto-Owners Ins

2019 COA 121

• Court: Colorado Court of Appeals
• Decided: August 1, 2019
• Docket: 18CA1201
• Status: Published

Opinion

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

2 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.

7 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).

9 ¶ 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.

10 V. Conclusion

¶ 16 We affirm the trial court’s order denying AOIC’s motion to

intervene.

JUDGE FREYRE and JUDGE WELLING concur.