In Colorado it is well recognized that an insurer has a broad duty to defend its policyholder against pending claims. An insurer’s duty to defend is triggered when the underlying complaint against the insured alleges any set of facts that might fall within the coverage policy. Greystone Construction, Inc. v. National Fire & Marine Insurance, Co., 661 F.3d 1272, 1284 (10th Cir. 2011). Even if the insurer’s duty to defend is not clear from the pleadings filed against the insured, the insurer’s duty to defend is triggered if the claim is potentially or arguably within the policy coverage. Id. If there is any doubt as to whether a theory of recovery falls within the policy coverage, such doubt is decided in favor of the insured and the insurer’s duty to defend is triggered. Id. In order to avoid this duty to defend, an insurer must show that an exemption to the policy applies and that no other basis exists for coverage under the policy.
In Cornella Brothers, Inc. v. Liberty Mutual Fire Insurance Company, 2014 WL 321335 (D. Colo. Jan. 29, 2015), the Court was to determine whether Liberty Mutual Fire Insurance Company (“Liberty Mutual”) had a duty to defend a lawsuit filed against its insured, Cornella Brothers, Inc. (“Cornella”). The underlying lawsuit alleged construction defects at a recharging facility. Upon being named a party to the underlying litigation, Cornella provided notice to Liberty Mutual and demanded that Liberty Mutual defend Cornella.
The Court first considered how the “your work” exclusion in the CGL policy might affect Liberty Mutual’s duty to defend. The exclusion applied to property damage to “your work” arising out of it or any part of it. The Court reasoned, even if the principal claims fall within the “your work” policy exclusion, it does not necessary follow that Liberty Mutual has no duty to defend. As stated in Greystone, if the allegations of the underlying complaint state any claim that “is potentially or arguably within the policy coverage” or that otherwise raise some doubt as to whether a theory of recovery within the policy coverage has been pleaded, the insurer has a duty to defend. Greystone, 661 F.3d at 1284.
Cornella’s argument for coverage by Liberty Mutual was based on two damage allegations in the underlying complaint. Cornella first argued that Liberty Mutual’s duty to defend was triggered by the language in the complaint that the alleged defects will result in the loss of access to additional water rights. The Court determined that the complaint alleged a loss of a chance at greater access to water rights and not the loss of water rights itself. The Court was not persuaded that the loss of a chance at greater water rights triggered insurance coverage. The Court recognized that while the loss of actual water rights might trigger coverage, the loss of a chance does not trigger the same obligation.
Cornella also relied on the language in the complaint, “damage to property of other,” to trigger a duty to defend. However, it is clear under Colorado law that vague and conclusory allegations alone do not trigger coverage. See Land v. Auto-Owners Ins. Co., 551 Fed.Appex. 795, 800, (10th Cir. 2013); TCD, Inc. v. Am. Family Mut. Ins. Co., 296 P.3d 255, 259 (Colo.Ct.App. 2012). To trigger coverage, more is needed from the insured, including a plausible theory explaining what the phrase is referencing and how the alleged damage triggers the duty to defend. Cornella’s mere reliance on the “damage to property of other” language alone was insufficient to trigger coverage.
While an insurer’s duty to defend is broadly construed, it is not triggered in every case. As in Cornella Brothers, Inc. v. Liberty Mutual Fire Insurance Company, an insurer’s duty to defend will not be triggered when the alleged damage is the loss of a chance at a future benefit or by vague and conclusory language.
To learn more about the Cornella Brothers, Inc. v. Liberty Mutual Fire Insurance Company decision or for additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.