70 F. Supp. 3d 1198
D. Colo.2014Background
- Wardcraft manufactured a modular home purchased by William and Grace Stuhr; DBI was the contractor that resold/constructed the home. The Stuhrs sued Wardcraft and DBI (original Stuhr Complaint, Oct. 30, 2009) alleging negligence, breach of warranty, and deceptive trade practices, asserting the home was unfinished and defectively constructed.
- Wardcraft held a Commercial General Liability (CGL) policy issued by EMC covering Nov. 24, 2008–Nov. 24, 2009. EMC denied coverage and any duty to defend in a February 5, 2010 letter, citing exclusions (including the impaired property exclusion).
- The Stuhrs later filed a Second Amended Complaint (Mar. 9, 2012) adding additional defendants; Wardcraft did not timely tender that amended complaint to EMC.
- Wardcraft settled the Stuhr suit, paying $50,000 (settlement retroactive to Jan. 14, 2013), then sued EMC in state court (Feb. 4, 2013) asserting breach of contract (duty to defend/indemnify), bad faith, statutory violations (Colo. Rev. Stat. §§ 10-3-1115/1116), and seeking declaratory relief; EMC removed to federal court.
- District court construed Wardcraft’s summary judgment motion as limited to EMC’s duty to defend, granted EMC’s summary judgment motion on all claims, denied Wardcraft’s partial summary judgment, and dismissed the case.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the Stuhr Complaint trigger EMC's duty to defend under the policy’s property-damage coverage (occurrence)? | Stuhr Complaint alleged negligent construction, loss of use, and delay damages that potentially arise from an "occurrence" (faulty workmanship causing unforeseeable damage to nondefective property). | The allegations only assert defective work/business risk (no occurrence) or are conclusory; even if an occurrence, policy exclusions (impaired property) bar coverage. | The complaint potentially alleged an occurrence (loss of use to nonphysically injured property), but EMC met its burden showing the impaired-property exclusion applies; no duty to defend on property-damage theory. |
| Did the impaired-property exclusion preclude coverage for alleged loss-of-use and delay damages? | (Implicit) Loss-of-use and delay damages arise from unforeseeable damage to nondefective property and should be covered. | The exclusion bars "property damage" to impaired property or property not physically injured arising out of defects in "your product" or your work, and delays/failures to perform. | The court held the exclusion applies (home was Wardcraft’s product/your work); exclusions remove any factual or legal basis for indemnity or defense. |
| Did the Stuhr Complaint allege "advertising injury" (use of another’s advertising idea) so as to trigger coverage? | Wardcraft argued the Energy Star representation could invoke advertising-injury coverage (use of another’s advertising idea). | EMC argued the Stuhrs’ injury flowed from failure to deliver a compliant product, not from wrongful use of an advertising idea; advertising coverage not implicated. | The court held the complaint did not allege the wrongful taking/use of another’s advertising idea or that advertising caused the injury; no advertising-injury coverage. |
| Are Wardcraft’s bad-faith and statutory claims timely/viable? | Wardcraft alleged EMC acted in bad faith and violated §§ 10-3-1115/1116 by refusing to defend and indemnify; argued indemnity denial only ripened in 2013 (settlement). | EMC argued those tort/statutory claims accrued when EMC denied coverage in Feb. 2010 and thus are time-barred under the two-year limitations period. | The court held Wardcraft’s bad-faith/statutory claims based on the refusal to defend accrued in Feb. 2010 and are barred. Wardcraft did not plausibly plead a bad-faith or statutory claim based on indemnity refusal, so no timely claim survived. |
Key Cases Cited
- Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083 (Colo. 1991) (insurer bears heavy burden to prove no possible basis for defense)
- Greystone Constr., Inc. v. Nat’l Fire & Marine Ins. Co., 661 F.3d 1272 (10th Cir. 2011) (occurrence exists when faulty workmanship causes unforeseeable damage to nondefective property)
- United Fire & Cas. Co. v. Boulder Plaza Residential, LLC, 633 F.3d 951 (10th Cir. 2011) (duty to defend is determined from four corners of the complaint)
- Compass Ins. Co. v. City of Littleton, 984 P.2d 606 (Colo. 1999) (insured need only show underlying claim may fall within coverage to trigger duty to defend)
- Cotter Corp. v. American Empire Surplus Lines Ins. Co., 90 P.3d 814 (Colo. 2004) (insurer must show allegations fall solely and entirely within exclusions)
- Basic Research, LLC v. Admiral Ins. Co., 297 P.3d 578 (Utah 2013) (advertising-injury coverage not implicated where injury flows from defective product, not from the advertising source)