Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Intrawest ULC, et al., No. 13-cv-00079-PAB-KMT, 2015 WL 1326199 (D. Colo. Mar. 20, 2015).
The U.S. District Court for the District of Colorado denies an insurer’s motion to dismiss, reasoning that under Colorado law, a party may assert a statutory bad faith claim as a “first-party claimant” and still pursue a third-party bad faith claim under common law.
National Union Fire Insurance Company of Pittsburgh, PA (“National Union”) issued five commercial general liability (“CGL”) insurance policies to Intrawest ULC f/k/a Intrawest Corporation (“Intrawest”), a developer of US and Canadian ski resorts, under an Owner Controlled Insurance Program (“OCIP”). As part of the OCIP, National Union and Intrawest entered into a Paid Loss Addendum and Policy Funding Schedule applicable to policies issued from 1998 to 2001, and another such addendum applicable to policies issued from 2001 to 2002. National interpreted these addenda as placing a $5,000,000 aggregate limit on coverage for all development projects.
Intrawest began developing a number of ski resorts in 1998. Over the course of the next several years, several lawsuits were commenced against Intrawest in both the United States and Canada. Each of the suits included allegations of faulty construction and design and sought compensation for property damage. In response to these actions, National Union filed suit in the United States District Court for the District of Colorado seeking a declaration that its policies had an aggregate limit of $5 million pursuant to the Paid Loss Addenda, and that its obligations were satisfied after paying this limit.
In addition, a number of real estate developers who worked on projects covered by the National Union policies, or were named defendants in suits arising from covered projects, were permitted to intervene. The intervenors had tendered claims to National Union under the OCIP that totaled over $25 million. The intervenors’ complaint included, among other things, claims for common law bad faith and statutory bad faith under Colo. Rev. Stat. § 10-3-1115 and § 10-3-1116. National Union moved to dismiss intervenors’ bad faith claims.
National Union argued that the intervenors’ statutory claim should be dismissed because only “first party claimants” could bring statutory bad faith claims under Colorado law. According to National Union, because courts view claims under CGL policies as “third-party claims” under common law, intervenors’ claims under the CGL policy could not provide a basis for a statutory cause of action. The court rejected National Union’s argument, explaining that courts interpreting Colorado’s bad faith statutes made clear that the statutory right of action was different from common law bad faith. The court reasoned that there was no indication that Colorado’s General Assembly intended for “first-party claimants” under the bad faith statute to include only those persons who could bring “first-party claims” under common law. Rather, the statute clearly defined “first-party claimant” in a manner that does not preclude CGL insureds from bringing a statutory bad faith claim.
National Union further argued that the statutory claims had to be dismissed because intervenors sought “damages” resulting from the satisfaction of underlying claims, instead of “benefits owed” under an insurance policy, as required under the bad faith statute. According to National Union, defense and indemnity costs are not “benefits” under a CGL policy. The court disagreed, explaining that Colorado indeed views the payment of defense costs and indemnity for covered claims as “benefits” of a CGL insurance policy. Accordingly, National Union’s motion to dismiss was denied.
National Union also moved to dismiss the intervenors’ common law bad faith claims, arguing that because intervenors asserted that they were “first-party claimants” for purposes of their statutory claims, they were required to plead a first-party common law bad faith claim. The court again rejected National Union’s argument. Because the statutory definition of “first-party claimant” does not directly correspond to first-party bad faith claims under common law, intervenors were not precluded from pursuing a third-party common law bad faith claim. The court went on to explain that in a third-party claim, the insured must prove that a reasonable insurer under the circumstances would have paid or settled the third-party claim. Meanwhile, in a first-party claim, the insured must prove that the insurer acted knowingly or recklessly in disregarding the insured’s claim. The court reasoned that it could not conclude as a matter of law that National Union’s actions with respect to the intervenors’ claims were reasonable. Thus, National Union’s motion to dismiss was denied and intervenors’ common law and statutory bad faith claims were permitted to move forward.