Melssen v. Auto-Owners Insurance Co.
285 P.3d 328
Colo. Ct. App.2012Background
- Melssens built a custom home and procured Auto-Owners CGL coverage, which obligated defense for damages occurring during the policy period.
- Holleys claimed approximately $300,000 in damages caused by Melssens’ defects and filed notices and reports under CDARA in 2008.
- Auto-Owners did not inspect or actively adjust the claim but later issued a coverage position denying coverage because damages occurred outside the policy period.
- The Holleys settled with the Melssens’ engineer; the Melssens paid $140,000 toward settlement; Auto-Owners did not receive advance copies of settlement documents.
- Plaintiffs sued Auto-Owners in 2009 for breach of contract, bad faith, and related statutes; a jury awarded damages to the Melssens and costs/fees were awarded at trial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CDARA notice qualifies as a ‘suit’ triggering defense duty | Melssen argues CDARA constitutes a ‘suit’ under policy | Auto-Owners contends CDARA is not a ‘suit’ triggering defense | CDARA notice is a ‘suit’ under the policy but harmless error |
| Whether consent to ADR was required for coverage | Implied consent or waiver by Auto-Owners | Consent was required explicitly and not shown | There was question of fact on implied consent/waiver, but ruling favorable to insured that coverage triggered |
| Whether the CDARA notice process is an ADR proceeding | CDARA notice is a valid ADR proceeding | CDARA notice is not an ADR proceeding | CDARA notice constitutes an ADR proceeding as a matter of law |
| Whether retroactive application of CDARA amendments affects outcome | Amendments apply retroactively | Retroactivity not necessary to decide this case | Court does not reach retroactivity issue; not needed for decision on this record |
Key Cases Cited
- Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083 (Colo. 1991) (insurer must show factual/legal basis for non-coverage; policy terms interpreted)
- Thompson v. Maryland Cas. Co., 84 P.3d 496 (Colo. 2004) (look to four corners of underlying complaint for duty to defend)
- Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294 (Colo. 2003) (policy terms ambiguity; interpretation of insurance policies)
- Colard v. American Family Mut. Ins. Co., 709 P.2d 11 (Colo.App. 1985) (waiver/consent issues; untimely notice defenses can be waived)
- Flatiron Paving Co. v. Great Sw. Fire Ins. Co., 812 P.2d 668 (Colo.App. 1990) (waiver/defense where insurer denied coverage on other grounds)
- Smith v. Executive Custom Homes, Inc., 230 P.3d 1186 (Colo. 2010) (CDARA context; purpose to encourage pre-suit resolution)
- Land-Wells v. Rain Way Sprinkler & Landscape, LLC., 187 P.3d 1152 (Colo.App. 2008) (CDARA framework and construction defect claims)