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-SKC
PRAETORIAN INSURANCE COMPANY,
Plaintiff,
v.
AXIA CONTRACTING, LLC, and
255 BLACKHAWK HOSPITALITY, LLP,
Defendants.
ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
Plaintiff Praetorian Insurance Company (“Praetorian”) brought this lawsuit
seeking a declaratory judgment that it has no obligation to pay insurance benefits under
a builder’s risk policy issued to Defendants Axia Contracting, LLC (“Axia”) and 255
Blackhawk Hospitality, LLP (“Blackhawk”) (jointly, “Defendants”).
This matter is before the Court on Praetorian’s Renewed Motion for Summary
Judgment (“Motion”). (ECF No. 83.) For the reasons explained below, the Motion is
denied.
I. STANDARD OF REVIEW
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.
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Abbott Labs., Inc., 259 F.3d 1226, 1231–32 (10th Cir. 2001). An issue is “g enuine” 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 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).
II. BACKGROUND
A. Factual Allegations1
On June 19, 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 for the
Project. (Id. ¶¶ 2–3.)
Early in the morning on June 19, 2017, a fire occurred at the Property damaging
the unfinished hotel structure. (Id. ¶ 4.) The City of Aurora Fire Department
investigated the fire and a fire investigator concluded that it was “result of an intentional
and direct human act” and classified the fire as “incendiary . . . that is deliberately set
1 The following factual summary is based on the parties’ briefs on the Motion and
documents submitted in support thereof. These facts are undisputed unless attributed to a
party or source. All citations to docketed materials are to the page number in the CM/ECF
header, which sometimes differs from a document’s internal pagination.
2
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with the intent to cause the fire.” (Id. at ¶ 5; ECF No. 83-1 at 10 (emphasis in original).)
At the time of the fire, Praetorian had issued to Defendants a builder’s risk
insurance policy, policy number P0033IM106828-00 (the “Policy”). (ECF No. 83 ¶ 6.)
The Policy covers perils during the course of construction, subject to the terms and
conditions of the Policy, including the terms of the Builders’ Risk Coverage as well as
any endorsements and schedules identified on the schedule of coverages. (Id. ¶¶ 7–8;
see ECF No. 83-2.) Under the Policy, Praetorian 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.)
The Policy includes a “Protective Devices Schedule” and a “Protective Devices
Endorsement” (“PDE”). (ECF No. 83-2 at 50–51.) The Protective Devices Schedule
lists the following protective devices or services:
Site will be protected with chain link fencing, or other similar
security fencing, at least 6 ft. in height completely enclosing
the jobsite.
All entrance and access gates shall remain securely locked
during non-working hours.
Jobsite will be fully illuminated each night with lights
continuously from sunset to sunrise.
(ECF No. 83 ¶ 10; ECF No. 83-2 at 50.) The PDE added both “other conditions” and
“perils excluded.” Under “other conditions,” the PDE stated:
Protective Devices – “You” are required to maintain, at all
times during the policy period, the protective devices and
services described on the Protective Devices Schedule.
(ECF No. 83 ¶ 9; ECF No. 83-2 at 51.) Under “perils excluded,” the PDE added the
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following language:
The following exclusion is added . . . under Perils Excluded
[of the Builders’ Risk Coverage] and applies only when a
device or service, shown on the Protective Devices
Schedule, provides fire protection:
“We” do not pay for loss caused by fire if, prior to the fire,
“you”:
a. had knowledge of any suspension or impairment in
the protective device or service described on the
Protective Devices Schedule and did not notify “us”;
or
b. failed to maintain in complete working order, the fire
protective device or service described on the
Protective Devices Schedule which “you” control.
(ECF No. 83 ¶ 9; ECF No. 83-2 at 51.) The PDE similarly excludes losses caused by
theft in the absence of a Protective Safeguard that provides theft protection. (ECF No.
83 ¶ 9; ECF No. 83-2 at 51.)
The parties agree that at the time of the fire, the Project jobsite was “not
enclosed with chain link fencing at least 6 feet in height, and because the jobsite was
not completely enclosed in such fencing, all entrance and access gates were not
securely locked.” (ECF No. 83 ¶ 12; ECF No. 53 ¶ 12.)
Defendants sought coverage from Praetorian for losses and damages caused by
the fire. (ECF No. 83 ¶ 13.) On August 23, 2017, Praetorian denied coverage for
failure to comply with the Policy. (Id. ¶ 14.)
B. Procedural History
The same day that Praetorian denied coverage for losses from the fire, it filed
the instant action seeking a declaratory judgment that it was not required to pay for
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losses at Defendants’ jobsite. (ECF No. 1 at 4–6, ¶¶ 19–28.) In response, Def endants
filed counterclaims seeking a declaratory judgment regarding the parties’ rights,
obligations and duties under the Policy, as well as claims for breach of contract and
statutory and common law bad faith. (ECF No. 23 at 19–22, ¶¶ 58–78.)
At a scheduling conference before U.S. Magistrate Judge Kristen L. Mix, the
parties requested that discovery be conducted in two phases: an initial period focused
on insurance coverage issues and a second period, if necessary, on Defendants’
counterclaims. (ECF Nos. 41–42.) Judge Mix granted the request.2 (ECF No. 41.)
On April 11, 2018, Praetorian filed a motion for summary judgment asserting:
(1) that the Policy did not provide coverage due to Defendants’ failure to comply with
the Policy, which was a condition of coverage; and (2) that coverage under the Policy
was also precluded by an exclusion for losses caused by fire. (ECF No. 50.)
Defendants filed their response on May 9, 2018 (ECF No 54), Praetorian filed its reply
on June 6, 2018 (ECF No. 59), and Defendants filed their sur-reply on June 13, 2018
(ECF No. 60).
The Court sought supplemental briefing from the parties addressing “the
materiality of the requirement to maintain the protective devices and services described
on the Protective Devices Schedule.” (ECF No. 62.) Specifically, the Court asked the
parties to address “the question of whether Defendants’ failure to erect and maintain a
chain link or similar security fencing at least six feet high completely enclosing the entire
jobsite constitutes a material breach of the insurance contract.” (Id.) The parties
2 This action was reassigned to Magistrate Judge S. Kato Crews on August 6, 2018.
(ECF No. 61.)
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simultaneously submitted their supplemental briefs on February 22, 2019. (ECF Nos.
63–64.)
On March 1, 2019, the Court granted summary judgment in favor of Praetorian,
determining that: (1) the erection and maintenance of a security fence was a material
term of the Policy; (2) Defendants’ failure to comply with this term was a material
breach of the Policy; and (3) Praetorian was excused from its contractual obligation to
provide coverage for Defendants’ loss as a result of the fire. (ECF No. 65.) Because
the Court resolved the Motion on the issue of material breach, it did not address
Praetorian’s other arguments in favor of summary judgment. (Id. at 11.) Defendants
appealed the Court’s order. (ECF No. 68.)
On December 31, 2019, the Tenth Circuit determined that the Court erred in
concluding that Defendants’ failure to maintain fencing and secured access was a
material breach of the Policy. (ECF No. 76 at 4–5.) The action was remanded to
consider the alternative bases raised in Praetorian’s Motion for Summary Judgment.3
(Id. at 5.)
On February 18 and 28, 2020, Defendants and Praetorian, respectively,
submitted supplemental briefing on the Motion. (ECF Nos. 84, 87.)
III. ANALYSIS
The present dispute is, at heart, one of contract interpretation. Under Colorado
3 The Court re-docketed Praetorian’s Motion as a new docket entry titled “Renewed
Motion for Summary Judgment.” (ECF No. 83.) On February 6, 2020, the Court informed the
parties that it would consider ECF Nos. 53, 59, 60 as the response, reply, and sur-reply,
respectively, to the Renewed Motion for Summary Judgment. (ECF No. 81.)
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law,4 courts construe insurance policies “using general principles of contract
interpretation.” Greystone Constr., Inc. v. Nat’l Fire & Marine Ins. Co., 661 F.3d 1272,
1283 (10th Cir. 2011). Therefore, absent an ambiguity, a policy’s language is construed
according to its plain meaning. Id. However, in recognition of the unique relationship
between insurer and insured, courts “construe ambiguous provisions against the insurer
and in favor of providing coverage to the insured.” Id. at 1284 (citing Cyprus Amax
Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 299 (Colo. 2003)). Courts look to the
policy as a whole to determine whether an ambiguity is present. Cary v. United of
Omaha Life Ins. Co., 108 P.3d 288, 290 (Colo. 2005) (en banc). Disagreements
regarding policy interpretation do not necessarily signal, or create, an ambiguity. Id.
Rather, “[a]n insurance policy is ambiguous if it is susceptible on its face to more than
one reasonable interpretation.” Id. One may not read an ambiguity into a term where
none exists in order then to resolve the resulting ambiguity against the insurer. See
Martinez v. Hawkeye-Security Ins. Co., 576 P.2d 1017, 1019 (Colo. 1978) (en banc)
(“[C]ourts will not force an ambiguity in order to resolve it against an insurer.”).
To determine whether a provision is ambiguous, “the instrument’s language must
be examined and construed in harmony with the plain and generally accepted meaning
4 Neither party objects to the application of Colorado law—or suggests that another
state’s law applies—to the interpretation of the Policy. (ECF No. 83 at 7; ECF No. 53 at 8–13.)
Federal courts sitting in diversity apply the forum state’s choice of law principles. U.S. Aviation
Underwriters, Inc. v. Pilatus Bus. Aircraft, Ltd., 582 F.3d 1131, 1143 (10th Cir. 2009).
Colorado’s choice-of-law rules provide that an insurance contract is governed “by the law of the
state with the most significant relationship to the insurance contract.” Berry & Murphy, P.C. v.
Carolina Cas. Ins. Co., 586 F.3d 803, 808 (10th Cir. 2009). Although neither party addresses
this issue, the location of the subject matter of the contract, as well as the events giving rise to
Defendants’ claim, occurred in Colorado. (ECF No. 15 ¶ 10.) Colorado therefore has the most
significant relationship to the Policy. See Berry & Murphy, 586 F.3d at 808.
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of the words employed, and reference must be made to all the provisions of the
agreement.” Radiology Prof’l Corp. v. Trinidad Area Health Ass’n, Inc., 577 P.2d 748,
750 (Colo. 1978) (en banc). Courts should avoid “strained constructions” in favor of
“common constructions,” and technical and legal definitions should also be avoided.
Dish Network Corp. v. Arch Specialty Ins. Co., 989 F. Supp. 2d 1137, 1144 (D. Colo.
2013). “In other words, the plain meaning of the words should be employed in a lay
manner consistent with what would be understood by a person of ordinary intelligence.”
Id.
Praetorian argues that the Policy does not provide coverage for Defendants’
losses for two reasons: (1) Defendants failed to maintain the scheduled protective
devices at the Property, which was a condition of coverage; and (2) Defendants’ losses
are excluded by the PDE. (ECF No. 83 at 1.) The Court will consider each argument in
turn.
A. Whether a Fence was a Condition Precedent to Coverage
Praetorian argues that the Policy does not provide coverage for Defendants’
losses resulting from the fire because Defendants failed to maintain the required
protective devices on the Property. (ECF No. 83 at 7.) Praetorian argues that because
“Defendants cannot show they satisfied this condition to coverage,” they “are not
entitled to coverage for this loss.” (Id. at 8.) Defendants dispute Praetorian’s
characterization of the fence requirement as a condition precedent to coverage. (ECF
No. 59.) Instead, they argue that the PDE is an “exclusion.” The Court agrees with
Defendants.
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Where an insurance contract contains a condition precedent, perf ormance of
that condition is a prerequisite to recovery on the policy. See Hurt v. N.Y. Life Ins. Co.,
51 F.2d 936, 938 (10th Cir. 1931); Restatement (First) of Contracts, § 250 (1932)
(recognizing that a condition precedent is a fact which must exist or occur before a duty
of immediate performance of a promise arises).
Under Colorado law,
[a] stipulation in a contract may be a condition or promise,
depending on the intention of the parties. An intent to create
a condition in a contract must appear expressly or by clear
implication. In cases of doubt as to the intention of the
parties, courts resolve the doubts in favor of an
interpretation making the engagement a promise rather than
a condition.
Charles Ilfeld Co. v. Taylor, 156 Colo. 204, 209 (Colo. 1964) (internal citations om itted);
Mularz v. Greater Park City Co., 623 F.2d 139, 142 (10th Cir. 1980) (“W here the
intention or meaning of a contract is in question . . . the tendency of the courts is to
construe it as a covenant or a promise rather than a condition unless it is plain that a
condition precedent was intended.”); see also Sec. Mut. Cas. Co. v. Century Cas. Co.,
531 F.2d 974, 976 (10th Cir. 1976) (recognizing that a provision “will not be construed
as a condition precedent unless that intention is clearly and unequivocally stated in the
contract”).
The Policy does not plainly reflect an agreement that the fence requirement is a
condition precedent to coverage under the Policy. To be clear, the PDE includes a
heading titled “OTHER CONDITIONS” which states that “‘You’ are required to maintain,
at all times during the policy period, the protective devices described on the Protective
Devices Schedule.” (ECF No. 83-2 at 51.) However, the PDE does not unequivocally
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state that the fencing requirement is a condition precedent to coverage, or that
Praetorian is relieved of all of its Policy obligations if Defendants do not maintain a 6 ft.
chain link fence around the Project. Instead, the PDE explicitly provides that failure to
comply with the Protective Devices Schedule leads to exclusion of certain perils, i.e.,
losses caused by either fire or theft. (Id.)
If the fence requirement were a condition precedent to the Policy, the “Perils
Excluded” section of the PDE would be rendered meaningless. Under Praetorian’s
reading of the PDE, Defendants’ failure to maintain a 6 ft. chain fence relieves
Praetorian of all of its Policy obligations. There would be no reason for the PDE to also
provide that Praetorian is not required to pay for losses caused by fire or theft if
Defendants “failed to maintain in complete working order, the [fire or theft] protective
device or service described on the Protective Devices Schedule.” Praetorian’s
proposed reading of the Policy is therefore inconsistent with the contract construction
principles. See Martinez v. Am. Family Mut. Ins. Co., 413 P.3d 201, 203 (Colo. App.
2017) (recognizing that courts “read the provisions of the policy as a whole, construing
the policy so that all provisions are harmonious and none is rendered meaningless”).
B. Whether the Protective Devices Exclusion Applies
Praetorian also argues that coverage under the Policy is excluded by the PDE.
(ECF No. 83 at 8.)
In insurance coverage disputes, “the insurer has the burden of proving that the
facts fall within the policy’s exclusions.” Rivelli v. Twin City Fire Ins. Co., 359 F. App’x
1, 4 (10th Cir. 2009); RK Mech., Inc. v. Travelers Prop. Cas. Co. of Am., 944 F. Supp.
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2d 1013, 1020 (D. Colo. 2011) (“W hen an insurance company seeks to limit or exclude
coverage under the terms of an insurance policy, the insurer bears the burden of
proving that a particular loss falls within an exclusion in the contract.”). To the extent an
insurer seeks to avoid liability, it “must do so in a clear and unequivocal language and
must call such limiting conditions to the attention of the insured.” Cyprus Amax
Minerals Co., 74 P.3d at 306; J & S Enter., Inc. v. Cont’l Cas. Co., 825 P.2d 1020, 1023
(Colo. App. 1991) (“[I]f exclusions are inserted in order to limit the general liability
insurance coverage, such exclusions are to be strictly construed against the insurer.
Only if exclusions, when viewed as a whole, unambiguously and unequivocally negate
coverage are they interpreted in the insurer’s favor.” (internal citations omitted)).
It is undisputed that the Property was not “protected with chain link fencing, or
other similar security fencing, at least 6 ft. in height completely enclosing the entire
jobsite” as required by the Protective Devices Schedule, and that Defendants’ losses
were caused by fire. (Id. ¶¶ 4–5, 12; ECF No. 83-2 at 50.) Accordingly, Praetorian
contends that the following exclusion in the PDE applies: “‘We’ do not pay for loss
caused by fire if, prior to the fire, ‘you’: . . . b. failed to maintain in complete working
order, the fire protective device or service described on the Protective Devices
Schedule which ‘you’ control.” (ECF No. 83-2 at 51.)
A determination about whether the exclusion applies to Defendants’ losses
depends on whether the required fence is a “fire protective device.” Because the terms
“fire protection” and “fire protection device” are not defined by the Policy, these terms
should be given their plain and ordinary meaning. Compass Ins. Co. v. City of Littleton,
984 P.2d 606, 613 (Colo. 1999) (en banc).
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The language of the Protective Device Schedule demonstrates that the
fundamental purpose of a fence is to provide security, not fire protection. After all, the
Protective Devices Schedule requires “chain link fencing, or other similar security
fencing . . . .” (ECF No. 83-2 at 50 (emphasis added).) The fact that a fence could
hypothetically reduce the chance of arson does not resolve the question of whether a
fence is a fire protection device. Indeed, most security devices—such as alarms, locks,
or cameras—would somewhat reduce the possibility of a multitude of property crimes,
including arson. However, a person of ordinary intelligence would not ordinarily
consider such security devices—or, for that matter, a security fence—to be fire
protection devices. See Dish Network, 989 F. Supp. 2d at 1144 (interpreting
contractual language in a lay manner consistent with what would be understood by a
person of ordinary intelligence and avoiding strained constructions).
Praetorian does not suggest that the required fence would provide any fire
protection aside from mitigating the possibility of arson.5 The Protective Devices
Schedule does not require that the fence be built with any fire retardant materials.
Indeed, because Defendants could have complied with the Protective Devices
Schedule by constructing “or similar security fencing,” Defendants could have
constructed a wooden fence, which arguably could have increased the Property’s fire
risk.
Accordingly, the Court finds that the plain and ordinary meaning of the term “fire
protective device” does not include “chain link fencing, or other similar security fencing,
5 For example, a 6 ft. chain link fence would not stop a fire from spreading to the
Property. It could, however, restrict firefighters’ access to the Property during a fire incident.
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at least 6 ft. in height.” Because the Policy language is unambiguous, the Court need
not consider extrinsic evidence to interpret the PDE.6 See City of Golden v. Simpson,
83 P.3d 87, 93 (Colo. 2004) (“If the terms are clear, a court will neither look outside the
four corners of the instrument, nor admit extrinsic evidence to aid in interpretation.”).
If Praetorian considered a fence to be a fire protection device, it could have
specified as much in the Policy using clear and unequivocal language. See Cyprus
Amax Minerals Co., 74 P.3d at 306–07. It did not do so. According ly, Praetorian has
failed to establish that Defendants’ losses fall within an exclusion of the contract. See
RK Mech., Inc., 944 F. Supp. 2d at 1020.
Praetorian’s request for summary judgment is therefore denied with respect to its
declaratory judgment claim.
C. Defendants’ Counterclaims
Defendants have asserted four counterclaims in this action: (1) declaratory
judgment as to coverage, (2) breach of contract, (3) unreasonable denial of benefits
under Colo. Rev. Stat. §§ 10-3-1115 and 10-3-1116, and (4) com mon law bad faith
breach of insurance contract. (ECF No. 23 at 19–21.)
Praetorian seeks summary judgment on Defendants’ counterclaims, which are
predicated on their entitlement to coverage under the Policy. (ECF No. 83 at 11–13.)
Praetorian argues that because Defendants are not entitled to insurance coverage,
6 Even if a term is not ambiguous, the Court is able to consider “definitions generally
accepted by the courts, the industry, and authoritative secondary sources” to interpret an
undefined contractual term. See Travelers Indem. Co. v. Howard Elec. Co., 879 P.2d 431, 434
(Colo. App. 1994). Thus, although the Court is permitted to consider the secondary sources
provided by the parties, it will not do so here because the plain and ordinary meaning of a “fire
protection device” is clear.
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Defendants’ counterclaims fail as a matter of law. See Tynan’s Nissan Inc. v. Am.
Hardware Mut. Ins. Co., 917 P.2d 321 (Colo. App. 1995) (recognizing that where a
policy provides no coverage, an insurer cannot be held liable on a theory of bad faith
refusal to pay). Praetorian also argues that “[e]ven if Defendants could demonstrate an
entitlement to coverage under the Policy, they cannot demonstrate that Praetorian
acted unreasonably in denying their claim.” (ECF No. 83 at 12.)
As explained above, Praetorian has not established that Defendants’ losses are
excluded from coverage by the PDE. A reasonable trier of fact could therefore find that
Praetorian breached the Policy7 or acted unreasonably in denying coverage of
Defendants’ claim related to the June 19, 2017 fire.8 (Id. ¶ 14.) See Zolman v.
Pinnacol Assur., 261 P.3d 490, 497 (Colo. App. 2011) (recognizing that reasonableness
under the circumstances is ordinarily a question of fact for the jury).
Accordingly, Praetorian’s request for summary judgment is therefore also denied
with respect to Defendants’ counterclaims.
7 To prevail on their breach of contract counterclaim, Defendants must show that: (1) a
contract existed; (2) Defendants performed their obligations under the contract or were excused
from doing so; (3) Praetorian failed to perform its obligations under the contract; and (4) as a
result, Defendants sustained damages. Western Distr. Co. v. Diodosio, 841 P.2d 1053, 1058
(Colo. 1992) (en banc).
8 An insurer breaches its statutory duty under Colo. Rev. Stat. § 10-3-1115 if there “was
no reasonable basis to delay or deny the claim for benefits.” Kisselman v. Am. Family Mut. Ins.
Co., 292 P.3d 964, 974 (Colo. App. 2011); Colo. Rev. Stat. § 10-3-1115(2) (stating “an insurer’s
delay or denial was unreasonable if the insurer delayed or denied authorizing payment of a
covered benefit without a reasonable basis for that action.”). Likewise, to establish a common
law bad faith claim under Colorado law, an insured must establish “proof of unreasonable
conduct and knowledge that the conduct is unreasonable or a reckless disregard of the fact that
the conduct is unreasonable.” Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1276 (Colo. 1985)
(en banc).
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IV. CONCLUSION
For the reasons set forth above, the Court ORDERS as follows:
1. Praetorian’s Motion for Summary Judgment (ECF No. 83) is DENIED; and
2. The parties are DIRECTED to jointly contact Judge Crew’s chambers by
no later than September 25, 2020 to set a Scheduling Conference, or
such other proceeding as Judge Crews deems appropriate to move this
action forward.
Dated this 23rd day of September, 2020.
BY THE COURT:
William J. Martínez
United States District Judge
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