799 F.Supp.3d 1161
D. Colo.2025Background
- Plaintiffs Brian Smith and Smith Ventures settled an underlying employee suit alleging unpaid commissions and civil theft for $137,000 and seek coverage under their Philadelphia Indemnity Employment Practices Liability policy.
- Plaintiffs moved for partial summary judgment requesting a coverage determination for the settlement and $19,682 in defense costs; Defendant sought leave to file a sur-reply and to have the court determine whether coverage exists.
- Defendant acknowledged the underlying unpaid-commission allegations could be construed as an Employment Practices Act claim but contended multiple policy exclusions (Exclusions B, D, E) preclude coverage.
- Central disputes: whether the employees’ commissions constitute “Earned Wages” (triggering Exclusion B), whether the exclusions’ exceptions restore coverage (including for tort-based back pay), and whether the settlement exhausted the retention so defense costs are covered.
- The court assumed Employment Practices Act coverage existed, concluded the settlement (including attorneys’ fees, multipliers, non-economic damages) constituted a covered “Loss,” held the exclusions’ exceptions apply, and found Plaintiffs’ defense costs are covered because the settlement satisfied the retention.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the employees’ claims fall within the Policy’s “Employment Practices Act” / whether a Loss occurred | Employees’ civil theft and unpaid-commission claims fit the Policy’s Employment Practices Act (includes employment misrepresentation and breach) and a Loss occurred | Defendant partly concedes commissions could be construed as Employment Practices Act claims but presses exclusions to deny coverage | Court treated underlying claims as Employment Practices Act claims and found a Loss occurred under the Policy (including fees, multipliers, non‑economic damages) |
| Whether commissions are “Earned Wages” such that Exclusion B bars coverage | Commissions are not “Earned Wages” under the Policy’s plain definition; the parenthetical exception for tort‑based back pay restores coverage | Commissions should be treated as wages/back pay and excluded; statutory definitions support exclusion | Court held Policy’s definition of “Earned Wages” does not include commissions; commissions here were tort‑based back pay (civil theft), so Exclusion B’s exception restores coverage |
| Whether Exclusion D (contractual-liability exclusion) bars coverage | Exclusion D’s exception restores coverage where liability would exist absent the employment contract (i.e., tort liability) | Exclusion D precludes coverage because claim arises from employment/agreements | Court held Exclusion D’s exception applies; underlying civil theft/tort liability would exist absent any contract, so coverage is restored |
| Whether Exclusion E bars coverage | Exception to Exclusion E applies to back pay at issue | Exclusion E precludes coverage for wage/back-pay related claims | Court held the exception to Exclusion E restores coverage for the settlement |
| Whether Plaintiffs’ defense costs are covered (did settlement satisfy retention) | Settlement exceeded the $25,000 retention and definitions treat Defense Costs as part of Loss; defense costs apply to and reduce retention, so coverage for $19,682 defense costs is owed | Retention applies and only certain costs should count; insurer argues limited grants of coverage and exclusions negate defense-cost recovery | Court held the settlement satisfied the $25,000 retention; Defense Costs are included in Loss and Plaintiffs’ $19,682 in defense costs are covered |
Key Cases Cited
- Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment standard) (sets standard for summary judgment review)
- U.S. Specialty Ins. Co. v. Estate of Earley, [citation="680 F. App'x 767"] (10th Cir.) (insurance‑coverage/exclusions under Colorado law)
- Smith v. State Farm Mut. Auto. Ins. Co., 399 P.3d 771 (Colo. App.) (policy language construed according to plain meaning)
- Thompson v. Maryland Cas. Co., 84 P.3d 496 (Colo.) (ambiguities construed against insurer)
- McGowan v. State Farm Fire & Cas. Co., 100 P.3d 521 (Colo. App.) (insurer bears burden to show exclusion applies)
- Rodriguez By & Through Rodriguez v. Safeco Ins. Co. of Am., 821 P.2d 849 (Colo. App.) (exceptions can restore coverage)
- TCD, Inc. v. Am. Fam. Mut. Ins. Co., 296 P.3d 255 (Colo. App.) (coverage provisions construed liberally in favor of insured)
- Federated Mut. Ins. Co. v. Grapevine Excavation Inc., 197 F.3d 720 (5th Cir.) (contractual-liability exclusions do not bar coverage when liability exists independent of contract)
- Am. Cas. Co. v. Timmons, 352 F.2d 563 (6th Cir.) (liability may exist under general legal principles absent contract)
- Admiral Ins. Co. v. Rio Grande Heart Specialists of S. Texas, Inc., 64 S.W.3d 497 (Tex. App.) (similar exclusion/exceptions analysis restoring coverage)