• ‘Additional Insured' Qualifies as a ‘First-Party Claimant' under Colorado's Bad-Faith Statute
  • June 21, 2013
  • Law Firm: Butler Pappas Weihmuller Katz Craig LLP - Tampa Office
  • D.R. Horton, Inc.-Denver v. Mountain States Mutual Cas. Co., 2013 WL 674032 (D. Colo. Feb. 25, 2013)


    The developers of a residential community in Colorado were sued by the homeowners' association alleging various construction defects.  The parties stipulated to arbitrate their dispute.

    The subcontractors whose work was allegedly defective were insured under various liability insurance policies.  The plaintiffs were "additional insureds" under these policies.  Plaintiffs had tendered the defense of the underlying suit to the insurers.  Each insurer allegedly accepted the tender and agreed to defend.  Although plaintiffs believed that the obligation to defend was joint and several, they proposed a fee-sharing agreement and with the insurers' consent, hired a third-party administrator to administer the accounting and billing of defense costs.  The plaintiffs' alleged that the insurers either refused to pay or paid only a small portion to the defense costs billed to them. Thus, the plaintiffs claimed that they had been forced to fund over $950,000 of their own defense costs.

    The developers sued the liability insurers in federal district court for a declaration of their rights under the policy, breach of contract, and for damages under Colorado's bad-faith statute. The insurers moved for a determination of law as to whether an additional named insured was a "first-party claimant" under Colorado's bad-faith statute.  Under the statute, an insurer that unreasonably delays or denies a first-party claimant's claim is obligated to pay attorney's fees and double damages.       

    Critical Issues:

    The district court considered whether an additional insured under a liability policy was a "first-party claimant" as defined in Colorado's bad-faith statute.  If yes, then a liability insurer may be liable for attorney fees and double damages for unreasonably denying a defense to an additional insured.


    The district court ruled on the question of law and held that the plaintiffs were "first-party claimants" under Colorado's bad-faith statute.  The court also ruled that the duty to defend was joint and several among the defendant insurance companies.  The insurers must jointly defend and fund the insured's defense.  If the insurers cannot reach an allocation agreement as to defense costs, the court will decide for them.


    The district court noted that Colorado courts are in conflict on this issue.  The ones that agree with the plaintiffs relied strictly on the language of the statute in defining a "first-party claimant".  The courts that disagreed relied on the traditional definitions of first- and third-party claims.  This district court agreed with the former and ruled that the plain language of the statute encompassed the plaintiffs as "first-party claimants."  As the statutory language was clear, the district court refused to consider legislative history (and apparently the traditional definitions) of first- and third-party claims.

    The district court also found that when multiple insurers have a duty to defend an insured, that duty is joint and several.  The insurers may agree to apportion costs under various allocation methods but if they fail to do so, the court will decide the matter.


    Colorado's district court judges are heavily divided on this issue.  The present court noted that the issue is currently pending in the Colorado Court of Appeals. Given the potential liability for double damages and attorney fees, insurers defending additional insureds in Colorado should be cognizant of these issues when disputes arise regarding shared defense costs among multiple insurers.