Last April, the U.S. District Court for the District of Colorado decided in an action for declaratory relief that the Colorado Construction Defect Action Reform Act (“CDARA”) does not afford insurers the right to separate notice, beyond that of the claimant to the construction professional, of their duty to defend the insured.
This case, Auto-Owners Insurance Company v. High Country Coatings, Inc., involves a dispute between a construction professional, High Country Coatings (hereinafter “HCC”), and its insurer, Auto-Owners Insurance Company (hereinafter “AOIC”). In 2012, HCC entered into a subcontract with Brinkman Construction to install floor coatings on a concrete floor in an airplane hangar. Soon after the work was complete, the flooring bubbled and blistered. Brinkman demanded that HCC re-do the floors.
However, before HCC installed the new floor coatings, its liability policy with AOIC terminated, and it entered into a new commercial general liability policy with AOIC. After HCC’s second coating of the floor resulted in bubbling and blistering, Brinkman’s insurer, Zurich, sent a letter to HCC indicating that the owner of the aircraft hangar asserted construction defect claims against Brinkman and HCC. Within days, HCC reported the claim to its insurer, AOIC. Almost a year later, AOIC denied HCC’s claim because there did not appear to be damage alleged outside of the scope of HCC’s work, triggering certain exclusions.
In November 2016, Zurich sued HCC in the District Court for Arapahoe County. AOIC appointed counsel to defend HCC in the Arapahoe County action, while reserving the right to deny the claim. A month later, AOIC sued HCC and Zurich in federal court, seeking a declaratory judgment that it was not obligated to defend HCC in the Arapahoe County action. U.S. District Court Judge Jackson found that AOIC did have a duty to defend HCC. Soon after, the jury in the Arapahoe County action returned a verdict in favor of HCC.
AOIC responded by amending its federal complaint for declaratory relief, claiming it owed no duty to defend HCC prior to the Arapahoe County case. In its motion for summary judgment, AOIC argued it had no duty to defend HCC prior to the Arapahoe County action because it never received a CDARA notice that would trigger its duty to defend. Because the duty to defend under the CDARA arises upon either the service of the notice of claim of defects or upon the filing of an action, and HCC never provided the statutory notice to AOIC, AOIC argued that it was not obligated to defend. AOIC further argued that the letter from Zurich to HCC that initially reported the construction defect claim was insufficient statutory notice under CDARA.
In evaluating this argument, Judge Jackson applied the policy of C.R.S. § 13-20-808, that is, to construe insurance contracts in favor of the insured as reasonably and objectively as possible. Looking at the plain language of the statute, that an insurer “shall defend a construction professional who has received a notice of claim,” Judge Jackson determined that an insurance company’s duty to defend its insured occurs as soon as notice is made to the construction professional itself, not the insurer. Further, Judge Jackson was not convinced by AOIC’s argument that the notice of claim should have come from the property owner itself, not Zurich. In fact, C.R.S. § 13-20-802.5(5) only requires notice to come from “a claimant,” which could include Zurich, on behalf of Brinkman. Judge Jackson granted summary judgment in favor of HCC on these issues.
However, Judge Jackson found a genuine dispute of material fact existed with regard to whether Zurich’s letter described the claim with sufficient detail to determine the nature of the defect and claimed damages, as required by CDARA. This factual dispute would need to go to the jury, should AOIC wish to pursue it.
This case is instructive for at least three reasons. First, it is important that claimants follow the letter of the law with precision and detail when giving notice of a construction defect claim.[2] Second, insurers cannot avoid the duty to defend because notice did not come to them separately or from a particular claimant. Finally, this case serves as a reminder that CDARA explicitly favors both 1) “the interpretation of insurance coverage broadly for the insured” and 2) “a broad interpretation of an insurer’s duty to defend.” C.R.S. § 13-20-808.
For additional information about the Auto-Owners v. High Country Coatings decision or construction litigation in general, you can reach Ben Volpe by telephone at (303) 987-7140 or by e-mail at Volpe@hhmrlaw.com.[1] Auto-Owners Ins. Co. v. High Country Coatings, Inc., 388 F. Supp. 3d 1328 (D. Colo. 2019).
[2] “Notice of claim” means a written notice sent by a claimant to the last known address of a construction professional against whom the claimant asserts a construction defect claim that describes the claim in reasonable detail sufficient to determine the general nature of the defect, including a general description of the type and location of the construction that the claimant alleges to be defective and any damages claimed to have been caused by the defect. C.R.S. § 13-20-802.5.
