630 F. App'x 826
10th Cir.2015Background
- KF 103 (insured) was sued in state court after subdivision/intersection work allegedly interfered with neighboring easements; WHMD and KF 103 sought quiet title relief but lost and were ordered to restore easements. Neighbors then filed counterclaims.
- Neighbors’ counterclaims (filed in 2011 and amended 2012) alleged trespass, negligence, negligent misrepresentation, and related claims against KF 103 and others.
- KF 103 tendered defense to its insurer, American Family, after both the 2011 and 2012 counterclaims; American Family refused to defend or reimburse defense costs.
- KF 103 sued American Family for breach of contract and bad faith; case removed to federal court where cross-motions addressed only the insurer’s duty to defend.
- The district court granted summary judgment for American Family, holding no duty to defend because underlying claims fell outside policy coverage (claimed to be expected/intentional acts). KF 103 appealed.
- The Tenth Circuit reversed and remanded, holding that under Colorado law the insurer’s duty to defend must be assessed from the face of the complaint and that several counterclaims were at least potentially covered.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurer can look beyond the face of the complaint (use Quiet Title Rulings) when deciding duty to defend | KF 103: Complaint rule bars considering extrinsic rulings adverse to insured; insurer must defend unless complaint shows no possible coverage | American Family: District court may consider later rulings (Quiet Title Rulings) to show intentional/expected conduct and negate duty | Held: Colorado complaint rule controls; district court erred by relying on Quiet Title Rulings — duty determined from complaint alone |
| Whether the neighbors’ counterclaims alleged an "occurrence" (an "accident") under the policy | KF 103: Counterclaims (trespass, negligence, negligent misrepresentation) can allege accidental/hybrid conduct and thus an occurrence | American Family: Alleged claims are intentional/trespass and thus fall under the "expected or intended" exclusion | Held: Several counterclaims (Peck 2011 trespass; Nance 2012 trespass; Marchants/Nance negligence and negligent misrepresentation) could be read to allege occurrences — insurer did not meet heavy burden to show no possible coverage |
| Whether intentional tort labels (e.g., trespass) automatically preclude coverage under "expected or intended" exclusion | KF 103: Intent to perform an act (trespass) is not the same as intent to cause the specific damages excluded by policy | American Family: Trespass and other intentional allegations show expected/intended damage so no duty | Held: Intent to commit act causing intrusion is not equivalent to intent to cause the resulting damage; trespass allegations alone do not automatically defeat duty to defend |
| Whether alleged damages constitute "property damage" under the policy | KF 103: Allegations of diminished value and loss of access to neighbors’ tangible property fit the policy (physical injury or loss of use) | American Family: Easements are intangible and damage to easement or subservient estate is not covered property damage | Held: While easement interest itself is not tangible, allegations of diminished value and loss of use of neighbors’ tangible property plausibly plead property damage — duty to defend applies |
Key Cases Cited
- Cotter Corp. v. Am. Empire Surplus Lines Ins. Co., 90 P.3d 814 (Colo. 2004) (establishes Colorado’s complaint rule and insurer’s duty to defend standard)
- Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083 (Colo. 1991) (discusses insurer’s obligation to defend under reservation of rights and ‘‘expected or intended’’ exclusion)
- Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294 (Colo. 2003) (construction of complaint rule and broad duty to defend)
- Thompson v. Maryland Cas. Co., 84 P.3d 496 (Colo. 2004) (insurer must defend if complaint alleges any facts that might fall within coverage)
- Compass Ins. Co. v. City of Littleton, 984 P.2d 606 (Colo. 1999) (insurer bears heavy burden to show underlying claim cannot fall within coverage)
- Pompa v. Am. Family Mut. Ins. Co., 520 F.3d 1139 (10th Cir. 2008) (Tenth Circuit predicted narrow exceptions to complaint rule in particular contexts)
- Apartment Inv. & Mgmt. Co. v. Nutmeg Ins. Co., 593 F.3d 1188 (10th Cir. 2010) (consideration of related pleadings for duty-to-defend analysis)
- Lamar Truck Plaza, Inc. v. Sentry Ins., 757 P.2d 1143 (Colo. App. 1988) (easements are interests in property, not tangible property)
- Hommel v. George, 802 P.2d 1156 (Colo. App. 1990) (loss of use of tangible property includes diminished value or usefulness)