COLORADO COURT OF APPEALS 2016COA164 

Court of Appeals No. 15CA1996 

Arapahoe County District Court No. 14CV32329 

Honorable Charles M. Pratt, Judge 

Mt. Hawley Insurance Company, a Illinois corporation, 

Plaintiff-Appellant, 

v. 

Casson Duncan Construction, Inc., a Colorado corporation, 

Defendant-Appellee. 

JUDGMENT AFFIRMED 

Division II 

Opinion by JUDGE DAILEY 

Furman and Harris, JJ., concur 

Announced November 3, 2016 

Moye White, LLP, David A. Laird, James Belgum, Denver, Colorado; Quilling, 

Selander, Lownds, Winslett & Moser, PC, Greg K. Winslett, Dallas, Texas, for 

Plaintiff-Appellant 

Markusson, Green & Jarvis, H. Keith Jarvis, Daniel R. Coombe, Denver, 

Colorado; BatesCarey, LLP, John E. Rodewald, Chicago, Illinois, for DefendantAppellee 
1 

¶ 1 In this insurance dispute, plaintiff, Mt. Hawley Insurance Co. 

(Mt. Hawley), appeals the district court’s entry of partial summary 

judgment in favor of defendant, Casson Duncan Construction, Inc. 

(Casson Duncan). We affirm. 

I. Background 

¶ 2 A homeowners association (HOA) sued developer Mountain 

View Homes III (MVH III) and general contractor Casson Duncan on 

claims concerning defective construction of a condominium project. 

In ensuing arbitration proceedings, MVH III’s insurer, Mt. Hawley, 

defended MVH III under a reservation of rights. The arbitration 

proceedings resulted in awards of damages and taxable costs to the 

HOA. Casson Duncan paid the $1.2 million costs award, for which 

it and MVH III were jointly liable, and thereafter sought 

contribution from MVH III and its insurer, Mt. Hawley. 

¶ 3 Mt. Hawley initiated the present action against its insured, 

MVH III, the HOA, and Casson Duncan, requesting a declaration 

that there was no coverage under its commercial general liability 

policies with MVH III for either the damages or costs awarded in the 

arbitration proceedings. As pertinent here, Casson Duncan filed a 
2 

counterclaim for declaratory and monetary relief against Mt. Hawley 

for payment of MVH III’s portion of the costs award. 

¶ 4 The parties filed cross-motions for summary judgment as to 

“coverage” issues. The district court denied summary judgment on 

all but one of those issues. Based on the language in the insurance 

policies, however, the district court determined that Mt. Hawley 

was, as a matter of law, responsible for paying MVH III’s portion of 

the cost award, regardless of whether it was also responsible for 

paying MVH III’s portion of the damages award. Consequently, the 

district court entered partial summary judgment for Casson 

Duncan on its counterclaim. 

¶ 5 The district court certified its partial summary judgment 

ruling under C.R.C.P. 54(b) as “final” for purposes of permitting 

appellate review at this time. 

II. Analysis

¶ 6 Mt. Hawley contends that the district court erroneously 

granted Casson Duncan a partial summary judgment because, 

contrary to the court’s ruling, Mt. Hawley’s responsibility for 

payment of costs was, under the policies, inextricably linked to the 

question whether the policies provided MVH III with coverage for the 
3 

HOA’s claims. Because the “coverage” issues had not been 

determined, Mt. Hawley asserts, the “costs” issue could not be 

determined either. We are not persuaded. 

A. Mt. Hawley’s Settlement with the HOA 

¶ 7 Subsequent to the court’s summary judgment rulings, Mt. 

Hawley agreed to pay the HOA an undisclosed amount to settle 

MVH III’s liability in connection with the claims adjudicated in the 

arbitration proceeding. Initially, Casson Duncan asserted that the 

settlement removed the coverage issues from the case, and, 

consequently, “Mt. Hawley has not [established], and never will be 

able to establish” the premise upon which it refuses to pay MVH 

III’s part of “taxable” costs. In other words, that Mt. Hawley had “no 

indemnity obligation in this case.” We are not persuaded. 

¶ 8 Following a settlement, coverage issues can still be determined 

between an insurer and its insured or a judgment creditor of the 

insured. See Nikolai v. Farmers All. Mut. Ins. Co., 830 P.2d 1070, 

1073 (Colo. App. 1991) (“An insurer . . . does not ordinarily waive 

its policy defenses by payment of settlement proceeds to a 

claimant. . . . Here, Alliance did not waive its policy defenses when 

it settled the claims after issuing a reservation of rights letter.”); see 
4 

also Bohrer v. Church Mut. Ins. Co., 965 P.2d 1258, 1261-67 & n.7 

(Colo. 1998) (declaratory judgments and garnishment proceedings 

are appropriate contexts for resolving coverage issues in third-party 

victim insurance cases); Horace Mann Ins. Co. v. Peters, 948 P.2d 

80, 84-85 (Colo. App. 1997) (settlement of underlying litigation did 

not render coverage issues moot, as between insured and insurer). 

¶ 9 Consequently, Mt. Hawley’s settlement with the HOA would 

not preclude it from litigating “coverage” issues with MVH III or, as 

pertinent here, its potential judgment creditor, Casson Duncan. If 

we were to agree that Mt. Hawley’s responsibility for paying part of 

MVH III’s costs depends on whether Mt. Hawley’s policies provided 

coverage for the HOA’s claims against MVH III’s acts, the case 

would have to be remanded to the trial court for a final 

determination of coverage. 

B. Interpreting the Policies 

¶ 10 Turning to the merits of Mt. Hawley’s appeal, the issue is 

whether the costs taxed against MVH III are payable by Mt. Hawley 

even if MVH III’s misconduct was not covered under the policies. As 

the district court recognized, the resolution of this issue depends 

upon an interpretation of the policies. 
5 

¶ 11 “An insurance policy, like any written contract, presents a 

question of law and, therefore, is appropriate for summary 

judgment.” Tynan’s Nissan, Inc. v. Am. Hardware Mut. Ins. Co., 917 

P.2d 321, 323 (Colo. App. 1995). 

¶ 12 An insurance policy must be interpreted using well-settled 

principles of contract interpretation. Chacon v. Am. Family Mut. Ins. 

Co., 788 P.2d 748, 750 (Colo. 1990). Thus, an insurance policy 

should be construed to give effect to the intent of the parties, and, 

when possible, the parties’ intent should be determined by the 

language of the policy alone. Compton v. State Farm Mut. Auto. Ins. 

Co., 870 P.2d 545, 547 (Colo. App. 1993). 

¶ 13 In construing an insurance policy, we give words their plain 

meanings according to common usage. In re Estate of Heckman, 39 

P.3d 1228, 1231 (Colo. App. 2001). Unless there is an ambiguity, 

an insurance policy should be enforced as written. Id. If an 

insurance policy is ambiguous — that is, if it is susceptible of more 

than one reasonable meaning — it must be construed against the 

insurance company. Hyden v. Farmers Ins. Exch., 20 P.3d 1222, 

1224 (Colo. App. 2000). 
6 

¶ 14 The policies at issue here have standard “coverages” and 

“exclusions” sections. A separate section, entitled “supplementary 

payments,” provides, in pertinent part: 

1. We will pay, with respect to any claim we 

investigate or settle, or any “suit” against an 

insured we defend: 

. . . . 

e. All costs taxed against the insured in 

the “suit.” 

. . . . 

These payments will not reduce the limits of 

insurance.1

¶ 15 Like the district court, we perceive no ambiguity in these 

provisions. 

¶ 16 Colorado law recognizes a distinction between an insurer’s 

duty to indemnify and its duty to defend. The duty to indemnify 

depends upon the existence of coverage under the policy; the duty 

to defend does not. See Cotter Corp. v. Am. Empire Surplus Lines 

Ins. Co., 90 P.3d 814, 827 (Colo. 2004); Hecla Mining Co. v. N.H. Ins. 

Co., 811 P.2d 1083, 1089 (Colo. 1991). 

 

1 There is no question that the arbitration proceeding was a “suit” 

within the meaning of the policies, as “suit” is defined by the 

policies to include “[a]n arbitration proceeding in which [property] 

damages are claimed and to which the insured must submit or does 

submit with [Mt. Hawley’s] consent . . . .” 
7 

¶ 17 In the policies at issue here, the obligation to pay costs is 

linked not to coverage, but to the defense of the case. Further, the 

costs/defense provision is physically separated (in the 

“supplementary payments” part of the policies) from the “coverage” 

and “exclusions” parts of the policies. The language and structure 

of the policies imply that the cost provisions “are separate from and 

in addition to the basic policy coverage, and, therefore, that [the 

insurer’s] obligation to pay such costs is unaffected by the fact that 

the policy does not cover [the insured’s] . . . conduct.” Mut. of 

Enumclaw v. Harvey, 772 P.2d 216, 219 (Idaho 1989). 

¶ 18 Indeed, as was the case in Harvey, the 

[l]anguage in the policy of this case does not 

indicate that payment of costs is conditioned 

upon a final determination that the policy 

covers the insured’s conduct. The language of 

the policy says that the [insurer] will pay all 

costs taxed against the insured in any suit 

defended by the [insurer]. 

Id. 

¶ 19 To the same effect, in Pacific Employers Insurance Co. v. Alex 

Hofrichter, P.A., 670 So. 2d 1023 (Fla. Dist. Ct. App. 1996), the 

Florida District Court of Appeals said, in a closely analogous 

situation: 
8 

[W]e need go no further than the clear 

language of the insurance policy to conclude 

that in light of the insurer’s undertaking of 

[the insured’s] defense, it was obligated to pay 

the cost judgment which followed. This court 

has already held that the supplementary 

payments provision of a policy applies 

independent of whether or not there is 

coverage. The policy at issue contains no 

restrictions or limitations on that promise. . . . 

Once [the insurer] defended, substantive 

coverage was not necessary to trigger the 

obligation to pay costs taxed against the 

insured in any suit. 

Id. at 1025 (citations omitted); see Prichard v. Liberty Mut. Ins. Co., 

101 Cal. Rptr. 2d 298, 312-13 (Cal. Ct. App. 2000) (“The cost claim 

is not . . . a substantive replay of the indemnity issue. The policy, 

in essence, obligates the insurer to pay the costs in any lawsuit it 

defends. . . . [T]he supplementary payments provision providing all 

‘costs taxed’ is a function of the insurer’s defense obligation, not its 

indemnity obligation.”).2

 

2 These decisions were rendered in jurisdictions which, like 

Colorado, recognize that the duty to defend is broader than the duty 

to indemnify and depends on the allegations of a complaint. See,

e.g., Certain Underwriters at Lloyd’s of London v. Superior Court, 16 

P.3d 94, 102 (Cal. 2001); Fun Spree Vacations, Inc. v. Orion Ins. Co., 

659 So. 2d 419, 421 (Fla. Dist. Ct. App. 1995); Hoyle v. Utica Mut. 

Ins. Co., 48 P.3d 1256, 1264-65 (Idaho 2002). 
9 

¶ 20 Persuaded by this rationale, we, like the district court, 

conclude that, having conducted MVH III’s defense in the 

arbitration proceedings, Mt. Hawley was, under the terms of the 

policies, obligated to pay MVH III’s portion of taxable costs. 

¶ 21 In so concluding, we reject Mt. Hawley’s assertion that the 

policies’ cost provisions were superseded by Mt. Hawley’s 

“reservation of rights” letter. Ordinarily, “a reservation of rights 

letter can only preserve rights already agreed to by the parties.” 

Huntsman Advanced Materials LLC v. OneBeacon Am. Ins. Co., No. 

1:08-CV-00229-BLW, 2012 WL 480011, at *10-11 (D. Idaho Feb. 

13, 2012); see also Harvey, 772 P.2d at 220 (A reservation of rights 

“is not a destruction of the insured’s rights nor a creation of new 

rights for the [insurer]”; rather, “[i]t preserves that to which the 

parties had originally agreed.”). 

¶ 22 There is, under Colorado law, an exception to this principle. 

In Hecla Mining, the supreme court stated that 

[t]he appropriate course of action for an 

insurer who believes that it is under no 

obligation to defend, is to provide a defense to 

the insured under a reservation of its rights to 

seek reimbursement should the facts at trial 

prove that the incident resulting in liability 

was not covered by the policy, or to file a 
10 

declaratory judgment action after the 

underlying case has been adjudicated. 

811 P.2d at 1089. This remedy, the supreme court said in Cotter, 

“allowed insurers . . . to seek reimbursement for defense costs if 

coverage ultimately did not exist under their policies.” 90 P.3d at 

8283; see Valley Forge Ins. Co. v. Health Care Mgmt. Partners, Ltd., 

616 F.3d 1086, 1093 (10th Cir. 2015) (characterizing Hecla Mining

and Cotter as “unmistakably indicat[ing] that Colorado law would 

allow an insurer to recover defense costs from its insured where it 

reserved the right to do so by letter, regardless whether the insurer 

also reserved that right in the underlying insurance policy itself”). 

¶ 23 “Defense” costs are not, however, the same as “costs taxed 

against the insured.” Compare, e.g., Gelman Scis., Inc. v. Fireman’s 

Fund Ins. Cos., 455 N.W.2d 328, 330 (Mich. Ct. App. 1990) 

(“Defense is defined as that which is alleged by the party proceeded 

against in a suit as a reason why plaintiff should not recover or 

establish what he seeks. Thus, defense costs are monies expended 

 

3 The remedy balanced “the interests of both the insurers and the 

insureds by ensuring that the broad rule basing the duty to defend 

on the complaint will not require insurers to pay defense costs if the 

coverage ultimately does not exist under the policies.” Cotter Corp. 

v. Am. Empire Surplus Lines Ins. Co., 90 P.3d 814, 828 (Colo. 2004). 
11 

to develop and put forth a theory that the defendant is not liable or 

only partially liable for the plaintiff’s injuries.”) (citation omitted), 

and Domtar, Inc. v. Niagara Fire Ins. Co., 563 N.W.2d 724, 738 

(Minn. 1997) (“[D]efense costs” are “those expenses reasonably 

necessary either to defeat liability or to minimize the scope or 

magnitude of such liability.”),4 with AXA Versicherung AG v. N. H. 

Ins. Co., 769 F. Supp. 2d 623, 625 (S.D.N.Y. 2011) (“Taxable costs 

are available to the prevailing party.”), and Barry v. Ariz. Dep’t of 

Econ. Sec., 542 P.2d 1138, 1139 (Ariz. Ct. App. 1975) (“[I]mposition 

of Taxable costs [are] for authorized expenses normally allowable to 

a prevailing party as taxable court costs.”), and Cross v. Elliot, 69 

Me. 387, 388 (1879) (“The law assumes that, all things considered, 

the taxable costs shall indemnify the prevailing party for his 

expenses and losses in the litigation.”). The Hecla Mining remedy of 

recouping “defense” costs would not extend, then, to recouping (or 

not, in the first instance, having to pay) “costs taxed against the 

insured.” 

 

4 Mt. Hawley understood “defense costs” in the same manner: it 

reserved the right “to seek and to pursue reimbursement from its 

insureds or any of them of the attorneys’ fees and costs it may incur 

in the future in providing a defense under reservation of rights.” 
12 

¶ 24 Finally, we reject Mt. Hawley’s assertion that our 

interpretation of the policies leads to absurd results. See Harvey, 

772 P.2d at 219 (“[I]t is arguable that since the [insurer] has the 

right to control the defense, including the power to refuse 

settlement, it should also bear the consequences of its case 

management decisions, including the consequence that the trial 

court may tax the opponent’s costs against the insured.”). 

¶ 25 Mt. Hawley agreed in its policies to pay all costs taxed against 

MVH III in any suit in which it defended MVH III. If Mt. Hawley 

wished to retain a right to seek reimbursement of those costs “in 

the event it later is determined that the underlying claim [was] not 

covered by the policy, [it was] free to include such a term in its 

insurance contract.” Gen. Agents Ins. Co. of Am. v. Midwest Sporting 

Goods Co., 828 N.E.2d 1092, 1103 (Ill. 2005) (emphasis added); 

accord Blue Cross of Idaho Health Serv., Inc. v. Atl. Mut. Ins. Co., 734 

F. Supp. 2d 1107, 1113 (D. Idaho 2010); Harvey, 772 P.2d at 220. 

Mt. Hawley did not do so here, and this court “cannot now ride to 

the rescue.” Aetna Cas. & Sur. Co. v. Pintlar Corp., 948 F.2d 1507, 

1513 (9th Cir. 1991) (noting that “[i]f an insurer intends the term 
13 

‘damages’ to be construed in a legal technical way, it should 

indicate that in the policy”).5

III. Conclusion

¶ 26 The judgment is affirmed. 

JUDGE FURMAN and JUDGE HARRIS concur. 

 

5 Mt. Hawley’s reliance on Bohrer v. Church Mutual Insurance Co., 

12 P.3d 854 (Colo. App. 2000), as grounds for a contrary conclusion 

is misplaced. In Bohrer, the division did not interpret the provisions 

of an insurance policy. Instead, it dealt with a punitive damage 

award, which would be against public policy for the insurer to 

cover. Id. at 856. The division concluded that, even assuming the 

policy’s language required the insurer to do something, it would be 

unenforceable on these grounds. Id. at 856-57. Unlike the 

situation in Bohrer, we perceive no public policy that would be 

violated as a result of our interpretation of the policies at issue 

here.