Court Opinion

ID: 4422121
Source: CourtListenerOpinion
Date Created: 2019-08-01 16:02:57.561425+00
Date Added: 2024-06-11T14:49:26.736759
License: Public Domain

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.

                                  11