Praetorian Insurance Company v. Axia Contracting, LLC et al

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 17-cv-2034-WJM-KAS
PRAETORIAN INSURANCE COMPANY,
Plaintiff-Counter Defendant,
v.
AXIA CONTRACTING, LLC, and
255 BLACKHAWK HOSPITALITY, LLP,
Defendants-Counter Plaintiffs.
ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT AND
DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
In this insurance coverage dispute, Defendants Axia Contracting, LLC and 255
Blackhawk Hospitality, LLC (collectively, “Defendants”) and Plaintiff Praetorian
Insurance Company (“Plaintiff”) file cross motions for summary judgment on the other’s
various claims for relief.1 (ECF Nos. 181, 182.) The motions are fully briefed. (ECF
Nos. 186, 187, 196, 197.)
For the following reasons, the Court grants in part and denies in part Defendants’
cross motion and denies Plaintiff’s cross motion.
1 More precisely, Plaintiff moves for summary judgment on “the parties’ claims for
declaratory judgment and Defendants’ counterclaim for breach of contract,” whereas
Defendants move for summary judgment on “all of the new claims and defenses added by
Praetorian in its Second Amended Complaint . . . and Amended Answer to Defendants’
Counterclaims.” (ECF No. 182 at 30; ECF No. 181 at 30.)
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I. 	PERTINENT BACKGROUND
In June 2017, Defendants were in the process of constructing a hotel (the
“Project”) at 255 Blackhawk Street, Aurora, Colorado (the “Property”). (ECF No. 83 ¶
1.) Blackhawk owned the Property, and Axia was the general contractor of the Project.
(Id. ¶¶ 2–3.)
On June 19, 2017, a fire damaged the unfinished hotel structure. (Id. ¶ 4.) The
City of Aurora Fire Department investigated the fire and concluded that it was the “result
of an intentional and direct human act.” (Id. ¶ 5; ECF No. 83-1 at 10.)
At the time of the fire, the Property was covered by a builder’s risk insurance
policy (the “Policy”) issued to Defendants by Plaintiff. (ECF No. 83 ¶ 6.) The Policy
covers perils that occur during the course of construction, subject to various terms,
conditions, and exclusions. (Id. ¶¶ 7–8; see ECF No. 83-2.) Specifically, the Policy
provides that Plaintiff is responsible for “risks of direct physical loss or damage unless
the loss is limited or caused by a peril that is excluded.” (ECF No. 83-2 at 20.)
In June 2017, Defendants sought coverage from Plaintiff for losses and damages
caused by the fire, estimating the repair cost at $3.1 million. (ECF No. 83 ¶ 13.) In
August 2017, Plaintiff denied coverage and filed suit seeking declaratory judgment that
it was not required to cover Defendants’ losses because Defendants undisputedly failed
to maintain a fence around the jobsite as required by the “Protective Devices
Endorsement” provision of the Policy. (Id. ¶ 14.) Defendants countersued for
declaratory judgment regarding the parties’ rights, obligations, and duties under the
Policy, as well as for breach of contract and statutory and common law2 bad faith. (ECF
2 In April 2023, Defendants voluntarily dismissed the common law bad faith claim. (ECF
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No. 23 at 19–22 ¶¶ 58–78.)
At the parties’ request, United States Magistrate Judge Kristen L. Mix ordered
discovery to be conducted in two phases: an initial phase focused on insurance
coverage issues and a second phase, if necessary, on Defendants’ counterclaims.
(ECF Nos. 41–42.)
In April 2018, Plaintiff moved for summary judgment, arguing that the Policy did
not cover Defendants’ losses because they failed to maintain the fence, which
constituted a condition precedent to coverage, and that this failure to do so constituted a
material breach under the “Protective Devices Endorsement” provision of the Policy,
thereby excusing Plaintiff from further performance, including covering the losses. (ECF
No. 50.)
In March 2019, the Court granted summary judgment in Plaintiff’s favor on its
material breach theory but was subsequently reversed by the Tenth Circuit. (ECF No.
76 at 4–5.) In September 2020, the Court on remand considered and rejected
Praetorian’s alternate theories for summary judgment. (ECF No. 88.) The case then
proceeded to phase two, i.e., discovery on Defendants’ counterclaims. (ECF No. 92.)
In September 2021, Plaintiff deposed Jeff Schaumann, an owner of Axia and a
partner of Blackhawk, during which it allegedly learned for the first time that, in
September 2017—a month after Plaintiff filed this lawsuit—Blackhawk sued Axia,
claiming that it was responsible for the loss. (ECF NO. 137 at 4.) Blackhawk and Axia
ultimately settled for $2 million. (ECF No. 182 at 6.) Plaintiff also learned that Axia
settled with a subcontractor for $30,000 in January 2019. (Id. at 7.)
No. 167.)
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In light of this new information, Plaintiff tendered further discovery requests, after
which Defendants disclosed e-mails reflecting Schaumann’s apparent belief that
partners of Blackhawk had enough money to complete the project despite Defendants’
contrary assertions to Plaintiff; documents pertaining to the two settlement agreements;
spreadsheets prepared by Schaumann in October 2017 and November 2017 indicating
to prospective buyers of the Project that the cost to repair the hotel structure was
hundreds of thousands of dollars lower than the estimate Defendants provided Plaintiff
in June 2017; and other documents reflecting the actual cost to complete the Project.
(Id. at 9–10.) Specifically, the October 2017 spreadsheet estimated the cost of
reconstruction at $2.6 million, and the November 2017 spreadsheet estimated the cost
at $2.4 million. (Id. at 4.) Notably, these figures differed from the $3.1 million estimate
Defendants provided Plaintiff in June 2017. (Id.)
In November 2021, Plaintiff moved for sanctions against Defendants for the late
disclosures. (ECF No. 107.) It also moved to amend its pleadings to assert new claims.
(ECF No. 117.)
In June 2022, then-United States Magistrate Judge Kato S. Crews granted
Plaintiff’s sanctions motion. (ECF No. 137.) He first noted that, although Plaintiff
served Defendants with three rounds of discovery requests spanning from January
2018 to May 2021, Defendants “provided no materials related to Blackhawk v. Axia or
the completion and sale of the hotel after the fire” until October 2021 and November
2021, despite these materials being facially responsive to Plaintiff’s numerous earlier
records requests. (Id. at 4, 6.) Judge Crews observed that Defendants “changed
Praetorian’s definition(s) of ‘Project’ to limit it only to pre-fire construction, which would
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exclude documents related to the completion of the project after the fire.” (Id. at 7.) In
Judge Crews’s view, “Defendants’ explanations for the Late Disclosures are various and
unsatisfying,” and some “border[] on specious.” (Id. at 8, 9.) Furthermore, he described
Defendants’ “altering the definitions of the scope of Praetorian’s requests” as “improper”
and done “[s]urreptitiously.” (Id. at 9–10.)
Judge Crews concluded that Plaintiff had been prejudiced by these “inadequate
and patently deficient” discovery responses and therefore permitted it to amend its
pleadings “to add a claim for breach of contract based on three new theories and
amend its reply to the counterclaims.” (Id. at 12.) He also awarded Plaintiff its
“reasonable attorney’s fees and costs associated with its Motion for Sanctions.” (ECF
No. 152 at 4.) But Judge Crews declined to fashion more stringent sanctions, such as
dispositive sanctions, because, among other reasons, “Plaintiff failed to assist [him] with
exploring alternative sanctions to judgment or dismissal” and Defendants “fell on their
sword” for their conduct (while “disavowing any willful conduct on their part”).3 (Id. at 4.)
As alluded, Plaintiff’s amended complaint relies on three new theories for why it
is not required to cover Defendants’ losses, totally or partially. (ECF No. 117.) In
particular, Plaintiff contends that it need not provide coverage for all or part of
Defendants’ losses under the Policy’s (1) “Misrepresentation, Concealment, or Fraud
Condition” provision (“MCF Provision”); (2) “Recoveries” Provision; and (3)
“Subrogation” Provision. (Id. at 7–8.) The MCF Provision provides:
This coverage is void as to you and any other insured if,
before or after a loss:
3 Later, the Court overruled Plaintiff’s objection to Judge Crews’s sanctions order, finding
that the objection was untimely and failed to show clear error. (ECF No. 215 at 2.)
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a. 	You or any other insured have willfully concealed or
misrepresented:
1) a material fact or circumstance that relates to this
insurance or the subject thereof; or
2) your interest herein.
b. 	There has been fraud or false swearing by you or any
other insured with regard to a matter that relates to
this insurance or the subject thereof.
(ECF No. 182 at 10) (internal quotation marks omitted).
The Recoveries Provision provides:
If we pay you for the loss and lost or damaged property is
recovered, or payment is made by those responsible for the
loss, the following provisions apply:
a. 	You must notify us promptly if you recover property or
receive payment
b. 	We must notify you promptly if we recover property or
receive payment;
c. 	Any recovered expenses incurred by either are
reimbursed first;
d. 	You may keep the recovered property but you must
refund to us the amount of the claim paid or any
lesser amount to which we agree; and
e. 	If the claim paid is less than the agreed loss due to a
deductible or other limiting terms of this policy, any
recovery will be prorated between you and us based
on our respective interest in the loss.
Id. (internal quotation marks omitted).
The Subrogation Provision provides:
If we pay for a loss, we may require you to assign to us your
right of recovery against others. You must do all that is
necessary to secure our rights. We do not pay for a loss if
you impair this right to recover.
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You may waive your right to recover from others in writing
before a loss occurs.
Id. (internal quotation marks omitted).
Plaintiff contends that coverage is void under the MCF Provision based on
Defendants’ various alleged misrepresentations, including its June 2017 repair estimate.
(ECF No. 181.) It likewise contends that coverage is void under the Subrogation
Provision based on the two settlement agreements. (Id.) Finally, Plaintiff argues that, in
the event it is required to cover Defendants’ losses, it is entitled to an offset under the
Recoveries Provision. (Id.)
In September 2023, both parties moved for summary judgment on Plaintiff’s new
theories for relief, among other issues. (ECF Nos. 181, 182.)
II. 	SUMMARY JUDGMENT STANDARD
Summary judgment is warranted under Federal Rule of Civil Procedure 56 “if the
movant shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248–50 (1986). A fact is “material” if, under the
relevant substantive law, it is essential to proper disposition of the claim. Wright v.
Abbott Labs., Inc., 259 F.3d 1226, 1231–32 (10th Cir. 2001). An issue is “genuine” if
the evidence is such that it might lead a reasonable trier of fact to return a verdict for the
nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).
In analyzing a motion for summary judgment, a court must view the evidence and
all reasonable inferences therefrom in the light most favorable to the nonmoving party.
Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Matsushita
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Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). In addition, the
Court must resolve factual ambiguities against the moving party, thus favoring the right
to a trial. See Houston v. Nat’l Gen. Ins. Co., 817 F.2d 83, 85 (10th Cir. 1987).
III. 	ANALYSIS
Both parties contend they are entitled to summary judgment on, among other
issues, Plaintiff’s three new theories for relief. (ECF Nos. 181, 182.) Addressing each
theory in turn, the Court grants summary judgment in Defendants’ favor on Plaintiff’s
Subrogation Provision theory but otherwise denies summary judgment on all other
issues.
A. 	MCF Provision
Defendants contend they are entitled to summary judgment on Plaintiff’s MCF
Provision theory because almost all facts of Defendants’ alleged misrepresentations
occurred after Plaintiff filed this lawsuit, which cannot be considered to void coverage as
a matter of law. (ECF No. 181 at 16.) As to Defendants’ alleged misrepresentation that
occurred before the lawsuit, e.g., the June 2017 estimate, Defendants assert that
Plaintiff admitted it has no evidence that Defendants knew or believed that the estimate
was inaccurate. (Id.)
Plaintiff counters that the pre- and post-lawsuit evidence undisputedly
“establishes that Defendants’ concealment of these documents was knowing and
deliberate.” (ECF No. 182 at 13.) It stresses that “[t]here is no dispute that Defendants
were aware of these documents since they were created” and that “[i]t was Mr.
Schaumann, the ‘point person’ for Defendants with respect to their disclosures and
discovery responses in this lawsuit, who actually prepared both documents in the fall of
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2017.” (Id. at 13–14.) Plaintiff maintains that “[t]here is also no support in Colorado law
for restricting the application of fraud clauses in insurance policies to pre-litigation
conduct.” (ECF No. 187 at 15.)
Initially, the Court addresses the parties’ dispute as to whether Colorado law
permits an insurer to void coverage under a fraud clause based on a misrepresentation
that occurs during litigation. Like the parties, the Court has not located any Colorado
authority directly addressing this exact issue. However, in Sunflower Condo. Assn. v.
Owners Ins. Co., 2018 WL 2196089 at *3 (D. Colo. 2018) (“Sunflower”), the
undersigned explained that, to prevail under a fraud clause, an insurer must prove that
(1) the insured misrepresented or omitted some fact; (2) the misrepresentations or
omissions were material; and (3) the insured had an intent to deceive. Id. (citing
Martinez v. Hartford Underwriters Ins. Co., 2014 WL 2016569, at *2 (D. Colo. May 15,
2014)); Hess v. State Farm Mut. Auto. Ins. Co., 2024 WL 1012911, at *4 (D. Colo. Mar.
8, 2024) (same). In Sunflower, the Court declined to enter summary judgment against
an insurer where the insured allegedly made a misrepresentation in a discovery
response—that is, after litigation had ensued. 2018 WL 2196089, at *3.
But the Court in Sunflower did not explicitly address or consider the legal issue of
whether a misrepresentation made during litigation can void coverage under a fraud
clause. Instead, the Court’s analysis focused on whether an insurer can prevail on a
fraud clause where it did not detrimentally rely on the misrepresentation in denying the
claim. Id. at *4. Having the occasion now to squarely consider the merits of the issue,
the Court is persuaded by Defendants’ argument (and reliance on copious out-of-state
authority) that fraud clauses must be based on pre-litigation misrepresentations, frauds,
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or concealments. American Paint Serv., Inc. v. Home Ins. Co. of New York, 246 F.2d
91 (C.A. 3, 1957) (holding that trial testimony could not be relied upon by the insurer to
show that fraud had occurred); Dodson Aviation, Inc. v. Rollins, Burdick, Hunter of
Kansas, Inc., 807 P.2d 1319, 1325 (1991) (“The overwhelming majority of jurisdictions
hold that only false statements made before legal proceedings have begun can serve to
void an insurance policy.”); Ocean-Clear, Inc. v. Continental Cas. Co., 462 N.Y.S.2d
251, 258 (1983) (“[I]t is generally accepted that fraud arising after the commencement of
an action on a policy does not void the policy.”) (citations omitted).4
In light of the foregoing, the Court instructs that Plaintiff may rely only on pre-
lawsuit facts, such as the June 2017 estimate, to support its MCF Provision claim. On
this point, the Court is mindful that the MCF Provision purports to void coverage if
Defendants “conceal” or “misrepresent” a material fact or commit a “fraud or false
swearing . . . with regard to a matter that relates to this insurance or the subject
thereof.” The Court perceives little to no evidence5 refuting the notion that Defendants
4 While the Court is troubled by Defendants’ late disclosures, it finds that “it is up to the
trial court to determine whether a drastic sanction such as dismissal is warranted for discovery
misconduct, including untruthful deposition testimony.” Haydaw v. Farm Bureau Ins. Co., 332
Mich. App. 719, 727, 957 N.W.2d 858, 863 (2020) (“To be clear, once an insurer fails to timely
pay a claim and suit is filed, the parties’ duties of disclosure are governed by the rules of civil
procedure, not the insurance policy.”). Here, Judge Crews declined to dismiss based on the
rules of civil procedure, and while the Court may have reached a different conclusion had it
considered the issue in the first instance, Plaintiff did not timely object to Judge Crews’s
sanctions order, nor demonstrate clear error in its belated objections. The time to more fully
redress Plaintiff’s injuries caused by Defendants’ post-lawsuit conduct has therefore come and
gone.
5 Defendants deny that they concealed evidence. (ECF No. 186 at 12 (“Thus, generally
speaking, most of the documents that Defendants produced in their supplemental productions
between October 4, 2021 and December 10, 2021 were not produced earlier because
Defendants, at the time, either did not believe them to be responsive to any of Praetorian’s
discovery requests, or believed they had communicated any restrictions on the scope of their
responses.”).) Simply put, the Court finds this argument utterly unconvincing.
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concealed various facts, such as the October 2017 and November 2017 estimates, the
settlement agreements, and more. As Judge Crews explained, “Defendants’
explanations for the Late Disclosures are various and unsatisfying,” and some “border[]
on specious.” (Id. at 8, 9.) Significantly, he described Defendants conduct as
“surreptitious.” (Id.) While the Court agrees with these descriptions (and Defendants
did not formally object to them), the October 2017 and November 2017 estimates were
nevertheless prepared after Plaintiff filed suit in August 2017. Consequently, the Court
will not permit Plaintiff to rely on these estimates to void coverage based on the
concealment portion of the MCF Provision.
The Court will, however, permit Plaintiff to present evidence of the October 2017
and November 2017 estimates to show that the June 2017 estimate constituted a
material misrepresentation under the MCF Provision.6 Contrary to Defendants’
assertion,7 it is a reasonable inference that Defendants’ June 2017 estimate—which
was hundreds of thousands of dollars less than the post-lawsuit estimates prepared for
6 The Court notes that Plaintiff appears to suggest that Defendants’ alleged
misrepresentation regarding their financial ability to rebuild the hotel without coverage from
Praetorian constituted a misrepresentation under the MCF Provision. (ECF No. 197 at 3.) Even
so, the Court fails to see at this juncture how that misrepresentation was material. That is, the
Court does not understand what Defendants’ financial position after the fire has to do with
Plaintiff’s decision to deny the claim. As to relevance, Plaintiff simply asserts that this alleged
misrepresentation undermines “the basis of [Defendants’] consequential damages claims.”
(ECF No. 197 at 11.) That is, Plaintiff does not seem to tie this alleged misrepresentation to its
decision to deny the claim.
7 Defendants assert that “Praetorian has admitted that it has no evidence to support its
MCF Claim to the limited extent it is based on conduct predating Praetorian’s denial of the
Claim.” (ECF No. 182 at 15.) The Court is unpersuaded that there is no evidence supporting
Plaintiff’s MCF Provision argument. To reiterate, it is a reasonable inference (and strong
argument, in the Court’s view) that the June 2017 repair estimate was a misrepresentation
based on what Defendants claimed the repair cost to prospective buyers only months later.
Wagnon, 146 F.3d at 771 (“[S]o long as [Plaintiff's] misrepresentations were made knowingly
and deliberately, the intent to deceive the insurer will be implied.”).
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prospective buyers—is precisely the type of material misrepresentation fraud clauses
are designed to prevent. See Fashho v. Liberty Mut. Ins. Co., 963 N.W.2d 695, 699
(2020) (explaining that an insurer can rely on evidence of fraud obtained after litigation
commences if the evidence relates to fraud that took place before the proceedings
began).
Indeed, the Court can think of few facts more material in the context of an
insurance coverage dispute than an insured’s allegedly inflated estimate of the value of
a claim. Wagnon v. State Farm Fire & Cas. Co., 146 F.3d 764, 768 (10th Cir. 1998) (a
misrepresentation or omission is material where “a reasonable insurance company, in
deciding its course of action, would attach importance” to the matter); Sunflower, 2018
WL 2196089, at *6 (“Thus, because a reasonable jury could find that a reasonable
insurance company could attach importance to the insured's cost of repair estimate and
Plaintiff fails to provide any evidence to the contrary, this argument fails.”).
Nevertheless, the Court cannot conclude as a matter of law that the June 2017
estimate constituted a misrepresentation. The Court observes Defendants’ argument
that the June 2017 $3.1 million figure was not a misrepresentation even considering the
post-lawsuit estimates, as Defendants explain that “[e]stimates change over time.”
(ECF No. 182 at 7.) Defendants also suggest “that they attempted to identify and
produce documents responsive to Praetorian’s discovery requests” and “voluntarily
supplemented (and advised Praetorian they would be doing so before any other
discovery issues came up)” when they realized that they had failed to turn over
responsive documents. (Id. at 20.) According to Defendants, “[t]hese are not the
actions of Defendants intent on concealing information from Praetorian.” (Id. at 21.)
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While the Court finds these explanations anemic at best, they minimally support
the inference that the Defendants intended to deceive Plaintiff. Simply put, Defendants’
intent in preparing the June 2017 estimate8 is a question of fact that should be decided
by a jury. See Turley v. State Farm Mut. Auto. Ins. Co., 944 F.2d 669, 672 (10th Cir.
1991) (“The materiality of a misrepresentation is a mixed question of law and fact that
under most circumstances should be determined by the trier of fact.”); see also Benson
v. Allstate Fire & Cas. Ins. Co., 2020 WL 227829, at *4 (D. Colo. Jan. 15, 2020)
(“Further, whether such statements were material, and whether such statements were
made by Plaintiff with an intent to deceive . . . also present genuine disputed issues of
material fact, including the quintessential jury responsibility to determine the credibility
of witnesses.”).
Hence, the Court denies both parties’ motions for summary judgment as to the
MCF Provision.
B. 	Recoveries Provision
Recall that the Recoveries Provision states:
If we pay you for the loss and lost or damaged property is
recovered, or payment is made by those responsible for the
loss, the following provisions apply:
a. 	You must notify us promptly if you recover property or
receive payment
b. 	We must notify you promptly if we recover property or
receive payment;
c. 	Any recovered expenses incurred by either are
8 The Court notes that Plaintiff also alleges a MCF Provision violation because
Defendants knew and withheld information “that vandals used gasoline left unsecured at the
building site to start the underlying fire—a fact Defendants certainly knew in the immediate
aftermath of the fire.” (ECF No. 244 at 5–6.)
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reimbursed first;
d. 	You may keep the recovered property but you must
refund to us the amount of the claim paid or any
lesser amount to which we agree; and
e. 	If the claim paid is less than the agreed loss due to a
deductible or other limiting terms of this policy, any
recovery will be prorated between you and us based
on our respective interest in the loss.
Defendants contend they are entitled to summary judgment on Plaintiff’s
Recoveries Provision, reading the Provision to apply only if Plaintiff paid Defendants for
the loss. (ECF No. 181 at 23.) And because Plaintiff has not yet paid on the claim,
Defendants argue that “the Recoveries Provision cannot apply.” (Id.)
Plaintiff responds that Defendants’ “interpretation requires reading words into the
condition that are not there.” (ECF No. 187 at 20.) By Plaintiff’s reading, the Provision
can apply if “payment is made by those responsible for the loss,” regardless of whether
Plaintiff tenders a payment. (Id.) To get there, Plaintiff relies heavily on the
“grammatical structure of [the Provision’s] original text, which separates the two clauses
with a comma and the word ‘or,’ indicating they are alternatives.” (Id. at 21.)
In a contract case, a motion for summary judgment allows for contract
interpretation as a matter of law. Lake Durango Water Co., Inc. v. Pub. Utils. Comm’n
of State of Colo., 67 P.3d 12, 20 (Colo. 2003). But before a moving party can attack a
contract claim on summary judgment, the moving party must first show that the contract
is unambiguous and can be construed as a matter of law. Stroh Ranch Dev., LLC v.
Cherry Creek S. Metro. Dist. No. 2, 935 F. Supp. 2d 1052, 1055 (D. Colo. 2013).
“In determining whether a provision in a contract is ambiguous, the instrument’s
language must be examined and construed in harmony with the plain and generally
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accepted meaning of the words used, and reference must be made to all the
agreement’s provisions.” Fibreglas Fabricators, Inc. v. Kylberg, 799 P.2d 371, 374
(Colo. 1990). Mere disagreement between the parties does not necessarily indicate the
provision is ambiguous. Id. Rather, a contract is ambiguous if it is “fairly susceptible to
more than one interpretation.” Id.
Where a contract is ambiguous, “the meaning of its terms is generally an issue of
fact to be determined in the same manner as other factual issues.” E. Ridge of Fort
Collins, LLC v. Larimer & Weld Irr. Co., 109 P.3d 969, 974 (Colo. 2005) (en banc).
Courts must then give effect to the intention of the parties by considering “competent
evidence bearing upon the construction given to the instrument by the parties
themselves, by their acts and conduct in its performance.” Id. Thus, when a court
determines that a document is ambiguous, it may then consider parol evidence to
explain or clarify the meaning of a document or the effect of its provisions. Id.
The Court concludes that the Recoveries Provision is ambiguous on its face.
While the Court thinks Defendants’ interpretation makes more practical sense than
Plaintiff’s—indeed, what would Plaintiff be “recovering” if it can prevail under this
Provision without having first tendered a payment?—the Court finds Plaintiff’s
grammatical and structural argument to be reasonable as well. Thus, because the
Recoveries Provision is “fairly susceptible to more than one interpretation,” Fibreglas
Fabricators, Inc., 799 P.2d at 374, the Court concludes that it is ambiguous and must
therefore be interpreted by the trier of fact after considering “competent evidence
bearing upon the construction given to the instrument by the parties themselves,” E.
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Ridge of Fort Collins, LLC, 109 P.3d at 974.9
In any event, even assuming Defendants have the better reading of the
Recoveries Provision, the Court sees no reason why the Provision would not apply
should a jury find that Plaintiff breached the contract and must cover Defendants’
losses. Hence, it would be premature at this juncture to grant summary judgment in
Defendants’ favor.
In sum, the Court denies both parties’ motions for summary judgment as to the
Recoveries Provision.10
C. 	Subrogation Provision
Defendants contend they are entitled to summary judgment on the Subrogation
Provision. (ECF No. 181.) Specifically, they argue that the Subrogation Provision does
not apply because (1) Defendants waived their right to recover from others in writing
before the fire occurred; (2) the anti-subrogation rule precludes an insurer from seeking
to recover from an insured; and (3) Plaintiff waived any right to subrogation by denying
the claim and letting the statute of limitations to lapse. (ECF No. 181 at 24, 27.)
Plaintiff responds that, while Blackhawk and Axia waived their subrogation rights
against each other, “it is undisputed that Blackhawk successfully pursued a liability
claim against Axia and Axia successfully pursued a claim against [its subcontractor].”
9 The Court recognizes that courts “construe ambiguous provisions against the insurer
and in favor of providing coverage to the insured.” Greystone Constr., Inc. v. Nat’l Fire & Marine
Ins. Co., 661 F.3d 1272, 1283 (10th Cir. 2011) (citing Cyprus Amax Minerals Co. v. Lexington
Ins. Co., 74 P.3d 294, 299 (Colo. 2003)). This principle is inapposite here, however, since the
Recoveries Provision does not pertain to providing coverage to an insured, but merely stands to
offset an insurer’s losses in certain circumstances.
10 To the extent Defendants argue that the settlement agreements vitiate Plaintiff’s right
to recover under the Recoveries Provision, the Court agrees with Plaintiff that Defendants could
not modify the Policy without Plaintiff’s consent. (ECF No. 22.)
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(ECF No. 187 at 25.) Plaintiff argues that this “is evidence to support that any such
subrogation waiver was itself waived and has no effect.” (Id.) Plaintiff also asserts that
the “no-coverage” exception to the anti-subrogation rule applies here and that it could
not have waived any subrogation rights, either through its conduct or allowing the
statute of limitations to lapse, because it did not learn of the settlements until 2021. (Id.
at 26.) In Plaintiff’s view, the Subrogation Waiver voids coverage because the
settlements impaired its subrogation rights. (ECF No. 182 at 23.)
“Ordinarily, an insurer has a subrogation right to recover the amounts it paid as
benefits to its insured from a third-party whose conduct resulted in the injury to the
insured.” Fairfield Dev., Inc. v. J.D.I. Contractor & Supply, Inc., 703 F. Supp. 2d 1211,
1215 (D. Colo. 2010). Under the anti-subrogation rule, however, an insurer cannot
assert a subrogation claim if the third-party is also an insured covered under the policy
for the risk in question. DeHerrera v. American Family Mut. Ins. Co., 219 P.3d 346, 351
(Colo. App. 2009). The rule serves two purposes: it prevents an insurer from passing
the risk of loss back to the insured in derogation of the purposes of the insurance policy
in the first place, and it prevents conflicts of interest that might arise where the insurer
would otherwise lack an incentive to provide a vigorous defense to the insured. Id.
Here, the anti-subrogation rule forecloses recovery for Plaintiff under the
Subrogation Provision. Blackhawk, Axia, and “All Sub-Contractors” are all named
insureds under the Policy. (ECF No. 56 at 55.) And the settlement agreements to
which Plaintiff seeks subrogation involve only these named insureds. Consequently,
Plaintiff cannot prevail based on the Subrogation Provision under the anti-subrogation
rule. Continental Divide Ins. Co. v. Western Skies Management, Inc., 107 P.3d 1145,
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1148 (Colo. App. 2004) (“[A]n insurer generally has no right of subrogation against its
own insured.”).
Plaintiff’s reliance on the “no-coverage exception” to the anti-subrogation rule
does not convince the Court otherwise. The exception provides that, where there are
two insureds on a policy, and one insured causes damage for which the insurer is liable
to the other insured, the insurer may seek subrogation against the insured who caused
the damage if the policy's coverage does not cover the insured's actions that caused the
damage. Continental Divide Ins. Co., 107 P.3d at 1148 (“If an insurer pays on behalf of
one insured for damage caused by a second insured, under a policy that does not cover
the second insured for the loss, the insurer may recover from the second insured by
subrogation.”) (emphasis added). Plaintiff argues that the exception applies here
because the Policy “does not provide liability coverage to Axia,” nor to “any of Axia’s
subcontractors.” (ECF No. 187 at 26.)
But the Court agrees with Defendants that “Praetorian has not identified any
portion of the Policy which extends coverage to Blackhawk for the losses resulting from
the fire but does not extend the same coverage to the other insureds under the Policy.”
(ECF No. 186 at 25.) And in its reply, Plaintiff simply repeats, in conclusory fashion,
that the Policy “did not provide liability coverage to Axia or any of Defendants’
subcontractors.” (ECF No. 197 at 13.) Plaintiff does not explain how or why its other
insureds—Axia and the subcontractors—would not have been covered for the losses
caused by the fire under the Policy. Continental Divide Ins. Co., 107 P.3d at 1148. As
a result, the Court concludes that Plaintiff has no subrogation rights for Defendants to
impair against Axia and the subcontractors, and thus, Plaintiff cannot void coverage
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pursuant to the Subrogation Provision.
Consequently, the Court grants summary judgment in Defendants’ favor on the
Subrogation Provision.
D. 	Defendants’ Breach of Contract Argument
Defendants contend that, even assuming coverage is void or offset under the
Policy Provisions discussed above, those Provisions are not dispositive because
Plaintiff breached the contract by not tendering payment, thereby materially breaching
the contract. (ECF No. 181 at 13 (“Praetorian cannot avoid its obligations under the
Policy, nor its liability for breaching the same, on the basis of alleged Policy breaches by
Defendants occurring after Praetorian materially breached the Policy.”).) Put differently,
Defendants argue that, because Plaintiff materially breached the contract by not
covering the claim back in August 2017, any subsequent alleged breach of the Policy by
Defendants cannot be considered to void coverage. Kaiser v. Mkt. Square Disc.
Liquors, Inc., 992 P.2d 636, 640 (Colo. App. 1999) (if a material breach occurs, it
“excuses further performance by the other party”).
Defendants essentially ask the Court to declare that it is entitled to summary
judgment on its breach of contract counterclaim as a matter of law. But the Court
cannot do so because Plaintiff can still prevail under the MCF Provision (or the
Protective Devices Endorsement Provision, on which Plaintiff still relies). If coverage
was void under the MCF Provision based on Defendants’ alleged misrepresentation in
the June 2017 estimate, Plaintiff did not breach the contract by refusing to cover the
loss. (See ECF No. 53 at 41 (candidly admitting that, if there is no coverage,
Defendants’ counterclaims, including for breach of contract, fail).)
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Accordingly, Defendants’ breach of contract argument is unavailing.
E. Defendants’ Statutory Bad Faith Claim
For similar reasons, the Court finds that it would be premature to grant summary
judgment in Plaintiff’s favor on Defendants’ statutory bad faith claim. (ECF No. 182 at
28.) While Plaintiff persuasively argues that the lengthy procedural history of this
case—including this Court’s earlier summary judgment in its favor—suggests that its
denial of the claim was not done in bad faith, the Court is not prepared at this juncture to
declare that Plaintiff acted reasonably in denying the claim as a matter of law. (Id.)
IV. 	CONCLUSION
For all these reasons, the Court ORDERS as follows:
1. 	Plaintiff’s Motion for Summary Judgment (ECF No. 182) is DENIED;
2. 	Defendants’ Motion for Summary Judgment (ECF No. 181) is GRANTED IN
PART AND DENIED IN PART, as set forth above; and
3. 	This case remains set for a Final Trial Preparation Conference on July 29, 2025,
and a 6-day jury trial to begin on August 11, 2025.
Dated this 6th day of November, 2024.
BY THE COURT:
______________________
William J. Martínez
Senior United States District Judge
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