Courts Continue to Split on Whether Defense Obligation Is a First Party Benefit Under Colorado Law, but Agree Duty to Defend Is a Joint and Several Obligation

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In D.R. Horton, Inc.—Denver v. Mountain States Mutual Casualty Co., No. 12-cv-01080 (February 25, 2013), another U.S. District Court judge for the District of Colorado determined a liability insured seeking defense costs from its insurer may qualify as a “first-party claimant” for purposes of Colorado’s Unfair Claim Settlement Practices Act, potentially entitling the insured to recover unpaid defense costs, attorneys’ fees in prosecuting the recovery action and two times the unpaid defense costs as a penalty.

D.R. Horton, Inc. — Denver and D.R. Horton, Inc. (collectively Horton) developed a residential community in Arapahoe County, Colo., known as Windemere. Following construction, the homeowners’ association sued Horton based upon alleged construction defects resulting from work performed by subcontractors. Each of Horton’s subcontractors was insured under a liability insurance policy provided by one or more of the defendant-insurers and each policy named Horton as an additional insured. Although the defendant-insurers had allegedly accepted Horton’s tender of the underlying suit, they had either refused to pay or only paid a small portion of defense costs billed to them. Consequently, Horton filed suit, asserting three claims: (1) declaratory judgment of the respective rights and obligations of the parties; (2) breach of contract on the basis that each insurer had a joint and several contractual obligation to defend; and (3) bad faith liability under C.R.S. § 10-3-1116, Colorado’s Unfair Claim Settlement Practices Act.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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