Mt. Hawley Insurance Co. v. Casson Duncan Construction, Inc.
2016 COA 164
| Colo. Ct. App. | 2016Background
- MVH III (developer) and Casson Duncan (general contractor) were defendants in an HOA action/arbitration over defective condominium construction; Mt. Hawley insured MVH III and defended under a reservation of rights.
- Arbitration awarded damages and taxable costs to the HOA; Casson Duncan paid the roughly $1.2 million costs award (jointly liable) and sought contribution from MVH III and Mt. Hawley.
- Mt. Hawley sued for a declaratory judgment denying coverage for the arbitration awards; Casson Duncan counterclaimed seeking MVH III’s share of the taxed costs.
- The district court held, based on the insurance policies’ “supplementary payments” language, that Mt. Hawley was obligated to pay costs taxed against MVH III for any suit it defended, and entered partial summary judgment for Casson Duncan.
- The court certified the partial summary judgment under C.R.C.P. 54(b); Mt. Hawley appealed, arguing the costs obligation was inseparable from the coverage/indemnity determination and that its reservation of rights protected it from paying taxed costs if coverage ultimately failed.
Issues
| Issue | Plaintiff's Argument (Mt. Hawley) | Defendant's Argument (Casson Duncan) | Held |
|---|---|---|---|
| Whether insurer must pay taxable costs assessed against insured in any suit the insurer defends, even if the underlying conduct is not covered | Costs payment is tied to indemnity/coverage; because coverage unresolved (and settlement occurred), insurer shouldn’t be forced to pay insured’s taxed costs | Policy’s supplementary payments obligate insurer to pay all costs taxed against the insured in any suit it defends, independent of indemnity | Court held insurer must pay taxed costs in suits it defends; supplementary payments clause is separate from coverage/indemnity |
| Whether insurer’s reservation of rights or post-arbitration settlement avoids the costs obligation or allows later recoupment | Reservation of rights or subsequent settlement removes insurer’s duty to pay costs or preserves right to recoup taxed costs later | Reservation of rights does not alter the policy term obligating payment of taxed costs; insurer could have contracted for recoupment but did not | Court rejected that reservation or settlement negated the policy obligation; Hecla/Cotter recoupment rule for defense costs does not extend to taxed costs against the insured |
Key Cases Cited
- Cotter Corp. v. Am. Empire Surplus Lines Ins. Co., 90 P.3d 814 (Colo. 2004) (distinguishes duty to defend from duty to indemnify and recognizes recoupment remedy for defense costs in narrow circumstances)
- Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083 (Colo. 1991) (insurer may defend under reservation of rights and later seek reimbursement of defense costs if coverage proven absent)
- Mut. of Enumclaw Ins. Co. v. Harvey, 772 P.2d 216 (Idaho 1989) (supplementary payments clause obligates payment of taxed costs independent of indemnity coverage)
- Pacific Employers Ins. Co. v. Alex Hofrichter, P.A., 670 So. 2d 1023 (Fla. Dist. Ct. App. 1996) (supplementary payments provision requires insurer defending the suit to pay taxed costs regardless of substantive coverage)
- Nikolai v. Farmers All. Mut. Ins. Co., 830 P.2d 1070 (Colo. App. 1991) (insurer does not waive policy defenses by settling claims after issuing reservation of rights)