Coverage Analysis
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COLORADO

  ACCIDENTS OR OCCURRENCES

  The Colorado Supreme Court has ruled that intentional injuries are excluded from coverage to “prevent extending to the insured a license to commit harmful, wanton or malicious acts.”  American Family Mutual Insurance Company v. Johnson, 816 P.2nd 952-957 (Colo. 1991).  

  Colorado Supreme Court ruled in Hecla Mining v. New Hampshire Ins. Co., 811 P.2d 1083 (Col. 1991) that pollution claims were an "occurrence" since there was no evidence that the insured had intended to cause pollution or that the insured had known that environmental harm would "flow deliberately from any intentional conduct of such insured."  It is not necessary that the insured intend the specific injury that results, however. 

   In American Family Mut. Ins. Co. v. Johnson, 816 P.2d 952 (Col. 1991), the court ruled en banc that an insured that struck a third party, whom he mistakenly believed was his wife, nonetheless meant to cause injury. 

   Further, intent will be inferred in certain cases, such as sexual assaults, where the insured's conduct is deemed to be inherently injurious.  Allstate Ins. Co. v. Troelstrup, 789 P.2d 415, 419 (Colo. 1990) and Nikolai v. Farmers Alliance Mut. Ins. Co., 830 P.2d 1070 (Colo. App. 1991).

  In Colorado Farm Bureau Mut. Ins. Co. v. Snowbarger, 934 P.2d 909 (Colo. App. 1997) the Court of Appeals has held that the mere presence of an allegation of negligence in a complaint that otherwise alleged repeated acts of sexual assault on a child was not sufficient to trigger coverage provided by a homeowner's policy.  The court pointed out that though the complaint labeled some allegations "negligence," the facts recited intentional sexual assault.

  A murder conviction estopped the insured from arguing in a subsequent insurance coverage proceeding that he had been insane or had lacked sufficient capacity to form an intent to injure.  Poole v.  State Farm Fire and Casualty Company, 941 F.Supp.964, 968 (D.Col.1996).

  The Tenth Circuit has ruled that a utility's refusal to provide natural gas to a mobile home park was an "event" or "happening," rejecting CNA's contention that such terms required a finding of fortuity as with "accident."  Public Service Company of Colorado v. Continental Casualty Company, 26 F.3d 1508 (10th Cir. 1994).  

  ALLOCATION AND SCOPE ISSUES

  The Colorado Supreme Court has adopted a “time on the risk” approach to long tail coverage disputes.  In ruling that the Court of Appeals erred in adopting a “pick and choose” trigger in a pollution case, the Supreme Court ruled in Public Service Company of Colorado v. Wallis, 986 P.2d 924 (Colo. 1999) that the insured’s loss should be pro-rated among the years of injury, taking into account both the insurers’ “time on the risk” and any risk assumed by the insured.  Further, in light of the SIR component of the coverage, the insured must pay a single SIR per site for each triggered policy year.  However, the insurers will not be entitled to a credit for payments that the insured had received from settling insurers.

  Earlier, the Supreme Court had ruled in Bohrer v. Church Mutual Insurance Company, 965 F.2d 1258 (Colo. 1998) that where damages are attributable to both covered and non-covered causes, a specific allocation must be made.  Applying an “independent concurrent cause” analysis the court refused to find that the claim should be covered or excluded in full.  Rather, the matter was remanded to the district court for an evidentiary hearing as to the amount of damages attributable to the covered and excluded clauses.  The court mused in a footnote that these allocation issues could be averted by submitting special interrogatories to the jury.  The court recognized, however, that injecting insurance issues into a court trial might confuse the jury, add to the complexity of jury instructions and enlarge the case to insurance coverage questions that, traditionally, are not presented to a jury in a tort action against an insured.

  An insurer’s breach of the duty to defend may estop it from seeking to apportion defense cost between covered and non-covered causes of action.  In Flannery v. Allstate Insurance Company, 49 F.Supp.2d 1223 (D. Colo. 1999), Judge Babcock declared that the insurers duty to defend extended to the entire action and did not permit an allocation between covered and non-covered causes of action.

  Interpreting Pennsylvania law, the U.S. Court of Appeals for the Tenth Circuit has affirmed a lower court's ruling that a carrier whose policy was in effect when an electronic pacemaker was installed owed a duty to defend and further ruled that the insurer had an obligated to pay 100% of the defense costs despite the fact that the policyholder subsequently purchased policies with large self-insured retentions for most of the exposure period. TPLC, Inc. v. United National Ins. Co., 796 F.Supp. 1382 (D. Col. 1992), aff'd in part, rev'd in part, 44 F.3d 1484 (10th Cir. 1995).

  A federal district court has indicated skepticism that the courts of Colorado would adopt a Buss- type analysis permitting an allocation of defense costs between covered and non-covered claims.  Farmington Casualty v. United Educators Insurance Risk Retention Group, 117 F. Supp. 2d 1022 (D. Colo. 1999).

  A federal district court adopted a "horizontal exhaustion" analysis in Scots Liquid Gold-Inc. v. Lexington Ins. Co., No. 97-B-107 (D. Colo. May 27, 1998), declaring that the insured must wipe out all "collectible" primary insurance before it could recover under the subject umbrella policy.  However, the court held that the insured need not expend the full amount of the underlying limits and could exhaust the underlying limits through settlements with the carriers even if those settlements were for less than the total policy limits.
 

  APPELLATE PROCEDURES

  Colorado has both a Court of Appeals and a Supreme Court.
 

  BAD FAITH
 
  Unfair claims handling is regulated under Colo. Rev. Stat. § 10-3-1104 (1973).  Unfair or deceptive consumer practices are proscribed by Colo. Rev. Stat. Ann. § 6-1-101 (1989 & Supp. 1992).

  Under Colorado law, every contract contains an implied covenant of good faith and fair dealing. 2 CRS Section 4-1-203 (1992); Surdyka v. DeWitt, 784 P.2d 819 (Colo. App. 1989). This is an implied obligation that arises from the special nature of an insurance contract and the relationship between the insurer and policyholder.  Farmers Group, Inc. v. Trimble, 691 P.2d 1138, 1141 (Colo. 1984).  In Trimble, the Colorado Supreme Court ruled that an insured could pursue a tort claim against its insurer for a breach of this covenant in addition to and apart from any contractual claim.  The court has since expanded this tort right to other forms of insurance, including workers compensation policies (Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1273 (Colo. 1985)) and commercial surety bonds (Transamerica Premier Ins. Co. v. Brighton School District 27J, 1997 WL 304916 (Colo. June 9, 1997)).

  However, the relationship between a liability insurer and a policyholder is not a true fiduciary one.  Bernhart v. Farmers Ins. Exchange, 915 P.2d 1285 (Colo. 1996). Further, notwithstanding Trimble, the Colorado Supreme Court ruled in Bernhardt that the obligation of good faith or fair dealing is not a benefit of the contract itself.  Trimble only means that an insured might sue in tort based upon a bad faith breach of an insurance contract, not that the failure to deal in good faith is itself a breach of the contact. 

  An insurer's bad faith breach of its policy obligations may subject it to tort liability.  Ballow v. Phico Ins. Co., 878 P.2d 672, 677 (Colo. 1994).  However, in Lira v. Shelter Ins. Co., 913 P.2d 514 (Colo. 1996), the Colorado Supreme Court refused to rule that this liability extended to all foreseeable damages, holding that the insurer could not be liable for an award of punitive damages that resulted from its negligent failure to settle within policy limits inasmuch as its policy specifically excluded coverage for punitive damages.

  An insurer does not act in bad faith in refusing to negotiate further after the tort claimant unreasonably demanded arbitration.  Bucholz v. Safeco Ins. Co., 773 P.2d 590 (Colo. App. 1988).
 
  The Colorado Supreme Court has recognized separate standards depending on whether a claim of bad faith arises in the context of a first or third party policy.  Farmers Group Ins. Co. v. Williams, 805 P.2d 419 (Colo. 1991).  Bad faith claims against liability insurers will be judged on the basis of whether the insurer acted unreasonably under the facts and circumstances.  Farmers Group Ins. Co. v. Trimble, 691 P.2d 1138 (Colo. 1984).  On the other hand, if the claim is presented under a first party policy, the insured must also show that the insurer "knew or recklessly disregarded" the fact that it was acting unreasonably.  Travelers Ins. Co. v. Savio, 706 P.2d 1258 (Colo. 1985).

  The Colorado Court of Appeals has held that an injured third party may not maintain a direct action for bad faith claims handling against the tortfeasor's liability insurer.  Schnaker v. State Farm Mutual Auto Ins. Co., 843 P.2d 102, 104 (Colo. App. 1992).
 
 
  "BODILY INJURY"

  Held not to encompass claims for mental distress. National Cas. Co. v. Great Southwest Fire Indemnity Co., 833 P.2d 741 (Colo. 1992)(wrongful termination).  The court distinguished its earlier ruling in Allstate Ins. Co. v. Troelstrup, 789 P.2d 415, 419 (Colo. 1990), which had found coverage for a claim of mental distress arising out of a sexual assault by the insured, holding that such claims would not be covered unless the emotional component of damages arose out of physical injury, physical contact or bodily pain.
 

  BREACH OF POLICY CONDITIONS

  Timely notice is a condition precedent to coverage.  Certified Indemnity Co. v. Thun, 439 P.2d 28 (Colo. 1968).  Where a notice is required to be given "as soon as practicable", it must be provided "within a reasonable length of time under all the facts and circumstances."  Id. at 30.  This permits the insurer to make a timely and adequate investigation and encourages compromise and settlement to avoid prolonged and unnecessary litigation.  Conversely, if the insured, "acting as a reasonably prudent person, believes he is not liable for the damage, a delay or failure to give the required notice" is excused.  Colard v. American Family Mutual Ins. Co., 709 P.2d 11, 15 (Colo. App. 1985).  However, an unexcused delay in giving notice of forwarding suit papers relieves the insurer of its obligations under the policy." Marez v. Dairyland Ins. Co., 638 P.2d 286, 290 (Colo. 1981).  
  The Court of Appeals has extended Marez to claims under excess policies and has further declared that the “no prejudice” rule is not limited to policies that made prompt notice a specific condition precedent to coverage.  Public Service Co. of Colorado v. Certain Underwriters at Lloyd’s, No. 97 CA 1498 (Col. App. March 4, 1999).

  The insurer need not show prejudice to avoid coverage.  Cf. Shelter Mutual Ins. Co v. Selley, 942 P.2d 1370 (Colo. App. 1997)("hit and run" notice requirement upheld whether not insured's delay caused prejudice) and  Public Service Co. of Colorado v. Certain Underwriters at Lloyd’s, No. 97 CA 1498 (Col. App. March 4, 1999).

  On the other hand, the duty to give notice of an “occurrence” does not arise until there is a reasonable belief by the insured that the accident may present a threat of legal liability to it.  See Newmont Mining Corp. v. INA, No. 98CA0414 (Colo. App. March 23, 2000)(trial court erred in granting summary judgment for insurers based on insured’s 11 month delay in giving notice of pollution problem).

  The Tenth Circuit has suggested an insured's failure to comply with the technical requirements of a policy may be excused if the insurer had actual notice through a third party.  Telectronics, Inc. v. United National Ins. Co., 796 F.Supp. 1382 (D. Col. 1992), aff'd as to this issue, 44 F.3d 1484 (10th Cir. 1995).   Likewise, the state Court of Appeals has ruled that a notice requirement may be satisfied by information obtained from a third-party other than the policyholder.   Hanson v. Barmore, 779 P.2d 1360 (Colo. App. 1988).

  A breach of the cooperation clause will only defeat coverage if it results in prejudice to the insurer.  In Brooks v. Haggard, 481 P.2d 131, 134 (Colo. App. 1970), the Colorado Court of Appeals rejected a per se rule of prejudice and holding that “if, after consideration of all factors involved, it appears that the presence of the insured or his testimony was so potentially valuable as to have materially affected the outcome of the trial, then his nonappearance is regarded as a material or prejudicial breach of the policy.”
 

  "BROAD FORM COVERAGES"

  The Court of Appeal has ruled in TerraMatrix, Inc. v. U.S. Fire Ins. Co., 939 P.2d 483 (Colo. App. 1997) that injuries suffered by office workers who inhaled ammonia fumes did not constitute a claim for "personal injury" coverage, finding that the allegations did not involve an invasion of the right to private occupancy "of a room, dwelling or premises that a person occupies by or on behalf of its owner, landlord or lessor." the court rejected the analysis of the U.S. District Court in Blackhawk-Central City Sanitation District v. American Guaranty and Liability Ins. Co., 856 F.Supp. 584 (D. Colo. 1994) rev’d on other grounds, 208 F.3d 1246 (10th Cir. 2000) which had concluded that claims for trespass and nuisance by plaintiffs whose property became contaminated as the result of discharges from the insured's sewage treatment facility were held to allege "wrongful entry, eviction or other invasion of the right of private occupancy."  

  Relying on TerraMatrix, a state trial court has since held in Cotter Corporation v. Great American Insurance Company, Denver No. 96 CV 0462 (Colo. Dist. Ct. January 9, 1998) that "personal injury" coverage is based upon "intangible injury to individual rights rather than physical injury to tangible property." 
 

  BURDEN OF PROOF

  Under Colorado law, an insured bears the burden of proving the applicability of an exception to a policy exclusion.  Public Service Co. of Colorado v. Wallis & Companies, 955 P.2d 564 (Colo. App. 1997), reversed on other grounds, 986 P.2d 924 (Colo. 1999) citing Rodriguez v. Safeco Ins. Co., 821 P.2d 849 (Colo. App. 1991).  In Public Service, the Colorado Court of Appeals had ruled that a policyholder has the burden of proving that environmental liabilities arose out of a "sudden and unexpected happening during the policy period" within the exception to the pollution exclusion at least as regards the duty to indemnify.  It was suggested that the insurer might have the burden as regards the duty to defend, however.
 

  CHOICE OF LAWS

  Courts in Colorado determine which state has the most significant contacts and apply the substantive laws of that state, based on the Restatement (Second) of Conflict of Laws.  Jefferson Indus. Bank v. First Golden Bancorporation, 762 P.2d 768 (1988); Prospero Associates v. Redactron Corp., 682 P.2d 1193 (1983).  In general, Colorado places greatest emphasis on the location where the policy was issued.  Budd v. American Excess Ins. Co., 928 F.2d 344, 347 (10th Cir. 1991) and Telectronics, Inc. v. United National Ins. Co., 796 F.Supp. 1382 (D. Col. 1992), aff'd as to this issue, 44 F.3d 1484 (10th Cir. 1995).
 

  "CLAIMS MADE" ISSUES

  The definition of "policy period" was found to be ambiguous in the context of tail coverage in an extended reporting period in Ballow v. Phico Ins. Co., 875 P.2d 1354 (Col. 1993).
 

  CONCURRENT CAUSATION

  Colorado courts have, to date, refused to adopt "efficient proximate cause" as a basis for creating coverage where a loss is contributed to by a non-excluded peril.  Kane v. Royal Ins. Co., 768 P.2d 678, 685 (Col. 1989).
 

  "DAMAGES"

  On June 28, 1999, the Colorado Supreme Court declared that Superfund clean up costs are "damages." Compass Ins. Co. v. City of Littleton, 984 P.2d 606 (Colo. 1999).  Earlier, the Colorado Court of Appeals had ruled that clean up costs incurred pursuant to state and federal environmental statutes are sums for which insureds are "legally liable", even in the absence of any lawsuits or environmental enforcement actions against them. Public Service Co. of Colorado v. Wallis & Companies, 955 P.2d 564 (Colo.  App. 1997).  See also Arkansas-Platte & Gulf Partnership v. Royal Ind. Co., El Paso No. 92CV1549 (Col. Dist. Ct. November 1, 1995)(insured may obtain coverage if clean up costs  were incurred pursuant to some state or federal mandate but not if they were paid voluntarily).

  Federal courts had also generally held that such costs are "damages."  See, Metro Wastewater Reclamation District v. Continental Cas. Co., 834 F.Supp. 1254 (D. Col. 1993); Gahagen Iron & Metal Co. v. Transportation Ins. Co., 812 F.Supp. 1106 (D. Colo. 1992), opinion withdrawn (D. Col. 1992); USF&G v. Colorado Bank Co., No. 86-Z-1033 (D. Col. November 4, 1988).
 

  DECLARATORY JUDGMENT ACTIONS

  An insurer need not wait until the conclusion of the underlying case to seek a declaration of no coverage.  Troelstrup v. District Court, 712 P.2d 1010 (Colo. 1986).

  In Constitution Assoc. v. New Hampshire Ins. Co., 930 P.2d 556 (Colo. 1996) the Colorado Supreme Court has clarified its ruling in Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083 (Colo. 1991) and has declared that anticipatory declaratory judgment actions may be filed by insurers prior to the resolution of the underlying liability cases in certain specified circumstances, as where the coverage action can be maintained independently and separately from the underlying action.  If the evidence or judgment in the declaratory judgment action presents the potential to prejudice the insured's defense in the underlying action the latter criteria are not met. 

  An insured that prevails in a coverage suit can recover both its defense costs in the underlying case and its attorneys fees for bringing the coverage claim. Hedgecock v. Stewart Title Guaranty Co., 676 P.2d 1208 (Colo. App. 1983) and Sims v. Transamerica Title Ins. Co., 835 P.2d 565 (Colo. App. 1992).  Further, the Supplementary Payment promise to pay reasonable expenses incurred at the request of the insurer has been held to encompass attorneys' fees incurred in responding to a declaratory judgment action brought by the insurer. Allstate Ins. Co. v. Robins, 597 P.2d 1052, 1053 (Colo. App. 1979).  Colorado courts have ruled in the past that an insured is entitled to recover fees for compelling an insurer to provide a duty to defend on the basis that such cost are implicitly incurred at the "request of the insurer."  Flannery v. Allstate Insurance Company, 1999 WL 359772 (D. Colo. June 3, 1999). The Supplemental Payments language has been extended to include even situations where the insured incurred fees in prosecuting an action for declaratory relief against the insurer.  Scott’s Liquid Gold, Inc. v. Lexington Insurance Company, 97 F.Supp.2d 1226 (D. Colo. 2000).

  A tort plaintiff lacks jurisdictional standing to bring a DJ against an insurer while its claims against the policyholder are still pending.  Farmers Ins. Exchange v. District Court, 862 P.2d 944 (Colo. 1993).
 

  DISCOVERY ISSUES

   --Claims Manuals

  Such discovery has been held to have no probative value in determining the mutual intent of the parties as reflected in the insurance contracts.  Metropolitan Denver Sewage Disp. Dist. No. 1 v. Continental Ins. Co., No. 89-C-895 (D. Colo. March 12, 1991)
 

   --Drafting History
 

   --Other Policyholder Claims

  In Weekley Homes, LP v. Reliance National Indemnity Company, No. 00-N-58 (D. Colo. October 17, 2000), Judge Watanabe ruled that the insurers were obligated to produce other claim files concerning their handling of soils claims in California and Colorado.

   --Reinsurance Information
 

   --Reserves
 

  DUTY TO DEFEND

  A defense obligation exists if a complaint alleges facts that are potentially or arguably covered.  If any doubt exists, the insurer must defend.  Hecla Mining v. New Hampshire Ins. Co., 811 P.2d 1083 (Col. 1991).  However, a duty to defend is not created merely because the insured claims that the allegations of the complaint are untrue.  Hecla and Nikolai v. Farmers Alliance Mut. Ins. Co., 830 P.2d 1070 (Colo. App. 1991).

  An insurer seeking to avoid this obligation therefore faces a "heavy burden" as it must show that the allegations are either "clearly not covered by the insuring language or are solely and entirely within exclusion provisions."  By contrast, the duty to indemnify is based upon evidence presented at trial and not mere allegations.  Hecla Mining, supra.

  The Tenth Circuit ruled in Signature Development Companies v. Royal Insurance Company of America, 2000 WL 1629676 (10th Cir. October 31, 2000) that an insurer was not relieved of its defense obligation by the fact that another insurer is separately providing a defense to the insured.

  Colorado courts have long recognized a distinction between a duty to defend and a duty to reimburse defense costs.  Farmington Casualty v. United Educators Insurance Risk Retention Group, 117 F. Supp. 2d 1022 (D. Colo. 1999); Fight Against Coercive Tactics Network, Inc. v. Coregis Insurance Company, 926 F. Supp. 1426, 1432 (D. Colo. 1996); and Bertagnolli v. Association of Trial Lawyers Assurance, 934 P.2d 916, 918 (Colo. App. 1997).

  The Colorado Supreme Court has ruled that an environmental demand letter from the US EPA is a “suit.”  Compass Ins.  Co.  v.  City of Littleton, 984 P.2d 606 (Colo. 1999).  Likewise, the Tenth Circuit has ruled that a policy that only provided for the payment of "legal expenses" without any limitation that they be incurred in the defense of "suits" extended to costs incurred by the insured in a state regulatory proceeding.  Public Service Company of Colorado v. Continental Casualty Company, 26 F.3d 1508 (10th Cir. 1994).
 

  ESTOPPEL AND WAIVER

  An insurer that defends and settles a case pursuant to a reservation of rights did not waive its policy defenses to dispute its claimed coverage obligations. Hartford Ins. Group v. District Court, 625 P.2d 1013 (Colo. 1981) and Nikolai v. Farmers Alliance Mut. Ins. Co., 830 P.2d 1070 (Colo. App. 1991).

  Under Colorado law, when an insurer denies coverage on specific grounds, it waives the right later to additional defenses to coverage, including lack of timely notice.  Flat Iron Paving Co. v. Great South West Fire Ins. Co., 812 P.2d 668 (Colo. App. 1990).  However, the failure to raise a late notice defense in a preliminary letter does not, without more, constitute a waiver of that defense.  Public Service Co. of Colorado v. Wallis & Companies, 955 P.2d 564 (Colo. App. 1997) and Haller v. Hawkeye Security Ins. Co., 936 P.2d 601 (Colo. App. 1997).  

  An insurer's breach of the duty to defend will not estop it from contesting its claimed indemnity obligation.  Signature Development Companies v. Royal Insurance Company of America, 2000 WL 1629676 (10th Cir. October 31, 2000).   However, the insurer will be precluded from contesting the reasonableness of the defense costs incurred by the insured and may be barred from seeking an allocation between covered and non-covered claims.  Flannery v. Allstate Insurance Company, 1999 WL 359772 (D. Colo. June 3, 1999).  
 
  EXCESS INSURERS

 –Drop Down Issues

  Colorado Court of Appeals ruled in Deisch & Marion v. International Ins. Co., 771 P.2d 19 (Colo. App. 1989) that an excess insurer was obligated to pay defense costs incurred prior to the insolvency of the primary insurer, since the primary insurance was no longer "collectible."

  The term "collectible" was deemed ambiguous in Scots Liquid Gold-Inc. v. Lexington Ins. Co., No. 97-B-107 (D. Colo. May 27, 1998).  The court declared that the insured could obtain coverage from an excess insurer based on settlements with primary carriers, even if the settlements had been for less than the total underlying primary limits.

 –Duty to Share in Defense Costs

  An excess insurer has been held to owe a pro rata share of defense costs corresponding to its indemnity obligation, including costs incurred prior to the date that the underlying policies became exhausted. Millers Mutual Ins.  Association of Illinois v.  Iowa National Mutual Ins. Co., 618 F.Supp.  301 (D. Col.  1985).
 

  NUMBER OF OCCURRENCES

  No cases.
 

  “OTHER INSURANCE”

  Under Colorado law, an “other insurance” clause that contains “pro rata” language will be primary to policies containing excess terms.  Colonial Insurance Company of California v. American Hardware Mutual Insurance Company, 969 P.2d 796, 800 (Colo. App. 1998) and Finizio v. American Hardware Mutual Insurance Company,  967 P.2d 188, 191 (Colo. App. 1998).  Likewise, where an educator’s liability policy contained an “excess” clause and a CGL policy contained a “pro rata” clause, a federal district court has ruled that the EIL policy is excess to the CGL policy.  Farmington Casualty Company v. United Educators Insurance Company, 1999 WL 33117173 (D. Colo. December 3, 1999).  
 

  POLLUTION EXCLUSION

  Supreme Court of Colorado ruled that "sudden" is ambiguous in Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083 (Col. 1991).  In Amax Research and Development Inc. v. Continental Ins. Co., Arapaho County District Court, Case No. 91CV3797 (Col. October 28, 1993), a trial court interpreted Hecla as requiring a defense in most pollution cases.
    
  The Supreme Court next considered the "accidental" aspect of the exclusion in Compass Ins. Co. v. City of Littleton, 984 P.2d 606 (Colo. 1999).  The Court of Appeals had refused to find that the insured's intentional disposal of treated sewage was excluded owing to questions of fact as to whether sewerage was a pollutant as well as the possibility that even intentional disposal of waste in a landfill would be "accidental" unless the insured also expected or intended leachate to occur. The Colorado Supreme Court agreed with this latter view. In adopting a “secondary discharge” analysis of the exclusion, the court expressly rejected the earlier prediction of the Tenth Circuit in in Broderick Investment Co. v. Hartford Acc. & Indemnity Co., 954 F.2d 601 (10th Cir. 1992) that the court would find that leachate and other secondary discharges are excluded as “arising out of” intentional discharges into or upon the land.

  A few months later, the state Supreme Court ruled in Public Service Company of Colorado v. Wallis, 986 P.2d 924 (Colo. 1999) that a London pollution exclusion for “sudden, unexpected and unintended happenings” must be interpreted from the standpoint of the insured in a case where a third party had disposed of the pollutants for a waste generator.  While reaffirming its Hecla ruling that “sudden” did not have a temporal meaning, the court ruled that it was not synonymous with “unexpected and unintended.”  The court therefore ruled that the exclusion applied unless the discharges were “unprepared for, unexpected and unintended.”

  In view of Public Service and Hecla Mining, the Tenth Circuit has more recently ruled in Blackhawk-Central City Sanitation District v. American Guaranty and Liability Ins. Co., 208 F.3d 1246 (10th Cir. 2000) that St. Paul had a duty to defend pollution liability claims since it had failed to prove that the insured’s repeated discharge of sewage in excess of permitted levels failed to describe a “sudden accident.”

  In Metro Wastewater Reclamation District v. Continental Cas. Co., 834 F.Supp. 1254 (D. Col. 1993), Judge Carrigan declined to grant summary judgment on the pollution exclusion due to disputed facts as to whether the insured's sewage sludge was a "pollutant or contaminant."   More recently, however, the Tenth Circuit has affirmed a lower court’s ruling that sewage is a “pollutant.”  In  Blackhawk-Central City Sanitation District v. American Guaranty and Liability Ins. Co., 208 F.3d 1246 (10th Cir. 2000),  the Tenth Circuit ruled that the issue was controlled by the allegations in the underlying suit which specifically alleged that sewage sludge was a “pollutant” and as the state and federal statutes under which the complaint sought damages characterized sewage as “pollutants.”

  The Colorado Court of Appeals has ruled in TerraMatrix, Inc. v. U.S. Fire Ins. Co., 939 P.2d 483 (Colo. App. 1997), that allegations of personal injury resulting from the exposure of office workers to ammonia fumes caused by the improper venting of gasses emitted from office machinery is barred from coverage by the policy's "absolute" pollution exclusion.  The court found that ammonia is a "pollutant" subject to federal regulation and that, in the circumstances of this case, clearly had been discharged within the meaning of the exclusion.  The court rejected the insured's argument that such exclusions are meant to be limited solely to the context of "environmental or industrial" pollution.  

  A discharge of chromic acid from the insured electroplating facility was held excluded in Power Engineering Co. v. Royal Ins. Co. of America,105 F.Supp.2d 1196 (D. Colo.  2000) despite the insured’s argument that the transition from “sudden and accidental” to absolute created ambiguity or warranted a finding of estoppel.

  An absolute exclusion was also held to bar coverage for claims by numerous individuals who alleged property damage, emotional distress, and other injuries resulting from discharges from the insured's mill despite the insured's assertion that these were claims for "personal injury." Cotter Corporation v. Great American Insurance Company, Denver No. 96 CV 0462 (Colo. Dist. Ct. January 9, 1998).  

  Terramatrix seems to contradict an earlier ruling of the Tenth Circuit, in which the federal Court of Appeals had used a "reasonable expectations" analysis in concluding that such exclusions did not apply to claims for personal injuries resulting from a leak of carbon monoxide from a faulty residential heater.  In Regional Bank of Colorado v. St. Paul Fire & Marine Ins. Co., 35 F.3d 494 (10th Cir. 1994), the Tenth Circuit the court noted that pollution exclusions are not intended to cover every conceivable "irritant" or "contaminant" and should only extend to "industrial or environmental" emissions.
 

  PROPERTY DAMAGE

  Pure economic loss or damage to intangible property is not covered as a general rule. Hommel v. George, 802 P.2d 1156, 1158 (Col. App. 1990) and Lamar Truck Plaza, Inc. v. Sentry Ins. Co., 757 P.2d 1143 (Colo. Ct. App. 1988).  In Bangert Brothers Construction Co. v. Americas Ins. Co., No. 94-1412 (10th Cir. September 11, 1995), the Tenth Circuit ruled that costs incurred by a subcontractor to replace defective concrete panels in the airport runway failed to allege an "occurrence" since there was no damage to third-party property.  Further, the court ruled that even if the diminished value of the runways was deemed to be property damage, any claim for coverage would be restricted to that amount exceeding the cost of repairing and replacing the insured's defective work and thus did not apply to these claims, which were restricted to the cost of repair and replacement of the defective panels which were in any event excluded as involving "faulty workmanship."   

  Incorporation of a defective component does not cause property damage unless the component is inherently harmful (e.g. asbestos) or will cause damage to the surrounding property by its removal.  Border Bolt Co., Inc. v. Twin City Fire Ins. Co., No. 97-1007 (10th Cir. June 24, 1998). 
 

  PUBLIC POLICY

  A policy term will only be deemed void and unenforceable as violating public policy if it seeks to "dilute, condition or limit statutorily mandated coverage."  Farmers Ins. Exchange v. Dotson, 913 P.2d 27, 30 (Colo. 1996) (no fault automobile coverage).  Similarly, policy exclusions may be ignored if so undercut the general grant of insurance as to make the coverage a nullity.  Cf. Allstate Ins. Co. v. Juniel No. 95CA4071 (Colo. App. July 11, 1996)(criminal acts exclusion was a reasonable limitation on general grant of insurance for accidents and not unenforceable due to public policy).
 

  PUNITIVE DAMAGES

  Colorado does not permit indemnification for punitive damages as being against public policy.  Lira v. Shelter Ins. Co., 913 P.2d 514 (Colo. 1996).  See also Union Ins. Co. v. Kjeldgaard, 775 P.2d 55 (Colo. App. 1988).
 

  STANDARDS FOR POLICY INTERPRETATION

  Under Colorado law, whether a policy term is ambiguous is not determined in a vacuum but must be considered objectively based upon the context in which the words are used.  Regional Bank of Colorado v. St. Paul Fire & Marine Ins. Co., 35 F.3d 494 (10th Cir. 1994) and Allstate Ins. Co. v. Juniel, 1996 Colo. App. LEXIS 207 (Colo. App. July 11, 1996).  The mere fact that terms may be deemed ambiguous as to a given set of facts does not make them ambiguous in all cases.  American Family Mutual Ins. Co. v. Johnson, 816 F.P2d 952 (Colo. 1991).  

  In the absence of an express policy definition, a court may look to extrinsic sources of evidence, including statutory definitions.  Bohrer v. Church Mutual Insurance Company, No. 97SC240 (Colo. September 21, 1998)(definition of “sexual act”).

  "Reasonable expectations" doctrine followed in Davis v. M.L.G. Corp., 712 P.2d 985 (Colo. 1986).  However, the Court of Appeals ruled in Shelter Mut. Ins. Co. v. Breit, 908 P.2d 1149 (Colo. App. 1995), that the doctrine should only be resorted to in extraordinary cases where ordinary rules of contract interpretation would lead to unconscionable results.  Further, the doctrine may not be applied where the policy provisions are unambiguous.  TerraMatrix, Inc. v. U.S. Fire Ins. Co., 939 P.2d 483 (Colo. App. 1997).   Accordingly, the doctrine of reasonable expectations may not be relied upon to create coverage where the terms of a contract are unambiguous.  Jefferson v. Scariano, 949 P.2d 120, 110 (Colo. App. 1997) and Pirkheim v. First UNUM Life Insurance Company, No. 99-1297 (10th Cir. October 24, 2000).

  If a policy term is susceptible or more than one reasonable interpretation, the one favoring coverage must be adopted.  Hecla Mining, supra and Sims v. Transamerica Title Ins. Co., 835 P.2d 565 (Colo. App. 1992).  However, the Colorado Court of Appeals ruled in Board of County Commissioners v. Colorado Counties Casualty and Property Pool, 93 CA 1124 (Col. App. December 15, 1994) that an apparent ambiguity resulting from conflicting endorsement in a "claims made" policy would not automatically be resolved in favor of coverage where extrinsic evidence of the parties' dealings established that a contrary result was intended.  

  Under Colorado law, the meaning of insurance contract is to be derived from the terms of the policy itself.  A court may sometimes admit extrinsic evidence such as evidence of local usage to determine whether a clause is ambiguous.  Pepcol Manufacturing Co. v. Denver Union Corp., 687 P.2d 1310 (Colo. 1984).  However, evidence from the parties themselves is inadmissible, particularly inasmuch as such evidence is irrelevant to what an ordinary person, not skilled in the ways of insurance, would understand a term to mean.  Allstate Ins. Co. v. Juniel, No. 95CA4071 (Colo. App. July 11, 1996).

 
  THEORIES OF ALTERNATIVE LIABILITY

  No cases.
 

  TRIGGER OF COVERAGE

  Colorado follows the majority rule that coverage is triggered when the claimant sustains actual damage and not when the act or omission that caused such damage was committed.  Samuelson v. Church, 529 P.2d 631, 187 Colo. 155 (1974)(no coverage for negligently installed gas line that caused explosion after policy expired).  However, injury to property alone is not enough.  In Browder v. USF&G, 893 P.2d 132 (Col. 1995), the Colorado Supreme Court ruled that the plaintiffs "must have some legally recognizable injury to their interests during the policy period in order to recover."  

  Although the Colorado Supreme Court has not yet had adopted a "trigger" for latent injury claims, the Colorado Court of Appeals ruled in American Employers Ins. Co. v. Pinkard Constr. Co., 806 P.2d 954 (Col. App. 1990) that a "continuous trigger" should be applied to a roof collapse case, holding that the process of corrosion was gradual and caused injury in policy years preceding the collapse.  The case was settled prior to argument before the Colorado Supreme Court, however.

  The application of a continuous trigger is dependent on evidence of progressive or continuous damages.  In Signature Development Companies v. Royal Insurance Company of America, 2000 WL 1629676 (10th Cir. October 31, 2000), the Tenth Circuit ruled that a liability insurer had no obligation to provide coverage for property damage claims where there was no evidence that the plaintiff’s homes had suffered injury during its policy.

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