Intervention by the Defending Insurer in Liability Cases After Bolt Factory Lofts
| Publication year | 2022 |
| Pages | 44 |
TORT AND INSURANCE LAW
BY KEVIN-F.AMATUZIQ
This article discusses the state of Colorado law regarding whether and when a liability insurer may intervene in the underlying liability case against the insured after the Colorado Supreme Court's recent decision in Auto Owners Insurance Co. v. Bolt Factory Lofts Owners Ass'n, Inc.
The existence and extent of a defendant's liability insurance coverage often depends on facts at issue in the underlying liability case. Additionally, pretrial settlements can involve stipulations, known as Nunn agreements,[1] between the insured defendant and the plaintiff with confessions of liability or for a consent judgment coupled with an assignment of rights against the insurer. Case law in Colorado has been mixed as to whether, and under what circumstances, a defending insurer has a right to intervene in the liability case against the insured to protect its own rights and interests. Much of this uncertainty was resolved by the Colorado Supreme Court's recent decision in Auto Owners Insurance Co. v. Bolt Factory Lofts Owners Ass'n, Inc.[2] (Bolt).
Bolt still left certain questions unanswered, including whether and when the liability insurer may intervene in the liability case to (1) advocate for using juror interrogatories and/or special verdict forms that may help establish the existence or extent of coverage for any damage award; or (2) protect its own interests as to any pretrial stipulated judgment or settlement. This article explores these issues and discusses arguments for and against such intervention after Bolt.
Intervention Under CRCP Rule 24
Intervention is governed by CRCP 24, which provides, in relevant part:
(a) Intervention of Right. Upon timely application anyone shall be permitted to intervene in an action: ... (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect thatinterest, unless the applicant's interest is adequately represented by existing parties,
(b) Permissive Intervention. Upon timely application anyone may be permitted to intervene in an action: ... (2) when an applicant's claim or defense and the main actionhave a question of law or fact in common___In exercising its discretion the court shall consider whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties.
Cases resolving motions to intervene hold that "Rule 24 should be liberally interpreted to allow, whenever possible and compatible with efficiency and due process, issues related to the same transaction to be resolved in the same lawsuit and at the trial court level."[3] Therefore, a court should liberally consider the movant's proffered interest in the subject property or transaction.[4] The interest prong '"is primarily a practical guide to disposing of lawsuits by involving as many apparently concerned persons as is compatible with efficiency and due process.'"[5]
Insurer Intervention in an Underlying Liability Case When the Insured Entered into a Pretrial Agreement
A defending insurer has an obligation to reasonably explore settlement.[6] An insured defended under reservation of rights facing exposure to a potentially uncovered damages award may seek to insulate itself from any ultimate judgment or settlement in exchange for certain concessions. Such concessions may include (1) a confessed or stipulated judgment, (2) an agreement not to introduce or contest evidence at trial, or (3) a confession of judgment for damages purportedly covered by the insurer's policy.[7] Such arrangements often include (1) a covenant not to execute a judgment in favor of the insured defendant, (2) an assignment of rights and claims against the defending insurer to the plaintiff, and/or (3) the insured agreeing to pursue its insurer for breach of contract or bad faith along with assignment of the proceeds of such claims to the plaintiff. The Colorado Supreme Court has recognized the validity of such agreements,[8] although in some cases has criticized them as potentially untrustworthy, collusive, and non-binding on an insurer that was not aparty to the proceeding.[9] If the insured or settling plaintiff can prove that the defending carrier breached its duties to the insured in bad faith, however, the insurer may be liable to extend coverage for such a judgment or settlement.[10] Prior to Bolt, insurers disputing liability for such a judgment or settlement often sought to intervene, arguing that it was the best if not the only way to fully protect its rights. Parties in the underlying case often opposed intervention, arguing that intervention was unnecessary because the insurer has a right to challenge the insured's pretrial protective agreement in a later proceeding.[11]
Treatment of Insurer Intervention
Before the Supreme Court opinion in Bolt, several unpublished Colorado Court of Appeals cases held that an insurer that does not deny coverage has a right to intervene in cases in which its insured executes a Nunn agreement. In Kuzava v. United Fire and Casualty Co.,[12] decided in 2018, United Fire was defending its insured when, on the eve of jury trial, the insured and the plaintiff entered into a Nunn agreement by which the insured obtained a covenant not to execute and assigned all claims against the insurer to the plaintiff. The parties f urther agreed to waive jury trial and submit their dispute to binding arbitration, which was not governed by the Colorado Rules of Evidence and had a limited right of appeal. The insurer sought leave to intervene. After a hearing attended and argued by the insurer but before a ruling on intervention, the trial court vacated the trial date and stayed proceedings for the parties to arbitrate. Shordy thereafter, the insurer filed its motion to intervene, which the court ultimately denied as moot. A substantial award was enteredinthe arbitration. On appeal, the Court of Appeals reversed. The court held that the insurer, which did not reserve the right to deny coverage, should have been granted intervention as a matter of right because (1) it had a direct interest in the lawsuit, (2) its interests were not protected by the insured under the Nunn agreement, and (3) there was no alternative forum (including the arbitration in which the insurer declined plaintiff's invitation to participate)[13] in which the insurer could protect its interest.
In another unpublished opinion issued in 2016, a different panel of the Court of Appeals decided Blair v. Fred Loya Insurance Co.,[14] which held, similarly to Kuzava, that the trial court committed reversible error in failing to grant intervention of right to an insurer whose insured had made a Nunn agreement, where the insurer did not reserve a right to deny coverage.
The Court of Appeals and Supreme Court Decisions in Bolt
On August 1, 2019, the Court of Appeals announced its decision in Bolt.[15] In Bolt, the insurer was defending its insured under a reservation of rights when the insured settled the claims against it using a Nunn Agreement,[16] under which the insured ultimately did not contest the evidence against it at trial. At the start of that trial, the insurer moved to intervene seeking to contest the settlement, continue the trial, and protect its rights under the policy. The trial court denied the insurer's motion to intervene, and the Court of Appeals affirmed. The Court of Appeals determined that the insurer's interest in the suit was contingent because it was defending under reservations,[17] and the insurer therefore lacked a sufficient "interest in the subject matter" to be granted intervention as a matter of right under Rule 24(a)(2).[18] The court agreed with the trial court's finding that the insurer's interests would be sufficiently protected by its filing of a declaratory judgment action.[19]
The Colorado Supreme Court granted certiorari and affirmed in a 4-3 decision, noting that intervention of right under Rule 24(a)(2) requires a fact-specific and liberally applied analysis.[20] The Court recognized that the party seeking intervention of right must prove (1) a claimed interest relating to the subject transaction, (2) that the disposition of the underlying action may impair its ability to protect its interest, and (3) that its interest is not adequately represented by existing parties.[21] The Court recognized its prior approval of Nunn-type agreements and also reaffirmed that pretrial stipulated judgments cannot be enforced against the insurer absent bad faith.[22] The majority in Bolt concluded that the agreement between the plaintiff and defendant was permissible under Nunn, although the trial court was not required to allow this process and could have required a standard Nunn agreement instead of determining damages during a bench trial.[23]
The Supreme Court affirmed the Court of Appeals' denial of the insurer's motion to intervene because the parties' agreement didnot impair the insurer's interests. The insurer could protect its interests through a separate coverage declaratory judgment action (which the carrier in Bolt had in fact already filed), or by asserting defenses to any assigned claims brought against it by the plaintiff.[24] The Court held that the bench trial was similar to a stipulated judgment under Nunn, and therefore does not bind the insurer "until it has an opportunity to challenge the judgment and advance its defenses before a neutral factfinder."[25]
In a spirited dissent, Justice Sam our, joined by Justices Hood and Boatright, criticized the bench trial between the plaintiff and defendant to secure the damage award, stating...
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