COLORADO COURT OF APPEALS                                       2016COA164


Court of Appeals No. 15CA1996
Arapahoe County District Court No. 14CV32329
Honorable Charles M. Pratt, Judge


Mt. Hawley Insurance Company, a Illinois corporation,

Plaintiff-Appellant,

v.

Casson Duncan Construction, Inc., a Colorado corporation,

Defendant-Appellee.


                           JUDGMENT AFFIRMED

                                 Division II
                         Opinion by JUDGE DAILEY
                       Furman and Harris, JJ., concur

                        Announced November 3, 2016


Moye White, LLP, David A. Laird, James Belgum, Denver, Colorado; Quilling,
Selander, Lownds, Winslett & Moser, PC, Greg K. Winslett, Dallas, Texas, for
Plaintiff-Appellant

Markusson, Green & Jarvis, H. Keith Jarvis, Daniel R. Coombe, Denver,
Colorado; BatesCarey, LLP, John E. Rodewald, Chicago, Illinois, for Defendant-
Appellee
¶1    In this insurance dispute, plaintiff, Mt. Hawley Insurance Co.

 (Mt. Hawley), appeals the district court’s entry of partial summary

 judgment in favor of defendant, Casson Duncan Construction, Inc.

 (Casson Duncan). We affirm.

                          I.    Background

¶2    A homeowners association (HOA) sued developer Mountain

 View Homes III (MVH III) and general contractor Casson Duncan on

 claims concerning defective construction of a condominium project.

 In ensuing arbitration proceedings, MVH III’s insurer, Mt. Hawley,

 defended MVH III under a reservation of rights. The arbitration

 proceedings resulted in awards of damages and taxable costs to the

 HOA. Casson Duncan paid the $1.2 million costs award, for which

 it and MVH III were jointly liable, and thereafter sought

 contribution from MVH III and its insurer, Mt. Hawley.

¶3    Mt. Hawley initiated the present action against its insured,

 MVH III, the HOA, and Casson Duncan, requesting a declaration

 that there was no coverage under its commercial general liability

 policies with MVH III for either the damages or costs awarded in the

 arbitration proceedings. As pertinent here, Casson Duncan filed a




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 counterclaim for declaratory and monetary relief against Mt. Hawley

 for payment of MVH III’s portion of the costs award.

¶4    The parties filed cross-motions for summary judgment as to

 “coverage” issues. The district court denied summary judgment on

 all but one of those issues. Based on the language in the insurance

 policies, however, the district court determined that Mt. Hawley

 was, as a matter of law, responsible for paying MVH III’s portion of

 the cost award, regardless of whether it was also responsible for

 paying MVH III’s portion of the damages award. Consequently, the

 district court entered partial summary judgment for Casson

 Duncan on its counterclaim.

¶5    The district court certified its partial summary judgment

 ruling under C.R.C.P. 54(b) as “final” for purposes of permitting

 appellate review at this time.

                           II.    Analysis

¶6    Mt. Hawley contends that the district court erroneously

 granted Casson Duncan a partial summary judgment because,

 contrary to the court’s ruling, Mt. Hawley’s responsibility for

 payment of costs was, under the policies, inextricably linked to the

 question whether the policies provided MVH III with coverage for the


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 HOA’s claims. Because the “coverage” issues had not been

 determined, Mt. Hawley asserts, the “costs” issue could not be

 determined either. We are not persuaded.

              A.    Mt. Hawley’s Settlement with the HOA

¶7    Subsequent to the court’s summary judgment rulings, Mt.

 Hawley agreed to pay the HOA an undisclosed amount to settle

 MVH III’s liability in connection with the claims adjudicated in the

 arbitration proceeding. Initially, Casson Duncan asserted that the

 settlement removed the coverage issues from the case, and,

 consequently, “Mt. Hawley has not [established], and never will be

 able to establish” the premise upon which it refuses to pay MVH

 III’s part of “taxable” costs. In other words, that Mt. Hawley had “no

 indemnity obligation in this case.” We are not persuaded.

¶8    Following a settlement, coverage issues can still be determined

 between an insurer and its insured or a judgment creditor of the

 insured. See Nikolai v. Farmers All. Mut. Ins. Co., 830 P.2d 1070,

 1073 (Colo. App. 1991) (“An insurer . . . does not ordinarily waive

 its policy defenses by payment of settlement proceeds to a

 claimant. . . . Here, Alliance did not waive its policy defenses when

 it settled the claims after issuing a reservation of rights letter.”); see


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  also Bohrer v. Church Mut. Ins. Co., 965 P.2d 1258, 1261-67 & n.7

  (Colo. 1998) (declaratory judgments and garnishment proceedings

  are appropriate contexts for resolving coverage issues in third-party

  victim insurance cases); Horace Mann Ins. Co. v. Peters, 948 P.2d

  80, 84-85 (Colo. App. 1997) (settlement of underlying litigation did

  not render coverage issues moot, as between insured and insurer).

¶9     Consequently, Mt. Hawley’s settlement with the HOA would

  not preclude it from litigating “coverage” issues with MVH III or, as

  pertinent here, its potential judgment creditor, Casson Duncan. If

  we were to agree that Mt. Hawley’s responsibility for paying part of

  MVH III’s costs depends on whether Mt. Hawley’s policies provided

  coverage for the HOA’s claims against MVH III’s acts, the case

  would have to be remanded to the trial court for a final

  determination of coverage.

                      B.    Interpreting the Policies

¶ 10   Turning to the merits of Mt. Hawley’s appeal, the issue is

  whether the costs taxed against MVH III are payable by Mt. Hawley

  even if MVH III’s misconduct was not covered under the policies. As

  the district court recognized, the resolution of this issue depends

  upon an interpretation of the policies.


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¶ 11   “An insurance policy, like any written contract, presents a

  question of law and, therefore, is appropriate for summary

  judgment.” Tynan’s Nissan, Inc. v. Am. Hardware Mut. Ins. Co., 917

  P.2d 321, 323 (Colo. App. 1995).

¶ 12   An insurance policy must be interpreted using well-settled

  principles of contract interpretation. Chacon v. Am. Family Mut. Ins.

  Co., 788 P.2d 748, 750 (Colo. 1990). Thus, an insurance policy

  should be construed to give effect to the intent of the parties, and,

  when possible, the parties’ intent should be determined by the

  language of the policy alone. Compton v. State Farm Mut. Auto. Ins.

  Co., 870 P.2d 545, 547 (Colo. App. 1993).

¶ 13   In construing an insurance policy, we give words their plain

  meanings according to common usage. In re Estate of Heckman, 39

  P.3d 1228, 1231 (Colo. App. 2001). Unless there is an ambiguity,

  an insurance policy should be enforced as written. Id. If an

  insurance policy is ambiguous — that is, if it is susceptible of more

  than one reasonable meaning — it must be construed against the

  insurance company. Hyden v. Farmers Ins. Exch., 20 P.3d 1222,

  1224 (Colo. App. 2000).




                                     5
¶ 14   The policies at issue here have standard “coverages” and

  “exclusions” sections. A separate section, entitled “supplementary

  payments,” provides, in pertinent part:

            1. We will pay, with respect to any claim we
            investigate or settle, or any “suit” against an
            insured we defend:
                 ....
                 e. All costs taxed against the insured in
                 the “suit.”
                 ....
            These payments will not reduce the limits of
            insurance.1

¶ 15   Like the district court, we perceive no ambiguity in these

  provisions.

¶ 16   Colorado law recognizes a distinction between an insurer’s

  duty to indemnify and its duty to defend. The duty to indemnify

  depends upon the existence of coverage under the policy; the duty

  to defend does not. See Cotter Corp. v. Am. Empire Surplus Lines

  Ins. Co., 90 P.3d 814, 827 (Colo. 2004); Hecla Mining Co. v. N.H. Ins.

  Co., 811 P.2d 1083, 1089 (Colo. 1991).



  1There is no question that the arbitration proceeding was a “suit”
  within the meaning of the policies, as “suit” is defined by the
  policies to include “[a]n arbitration proceeding in which [property]
  damages are claimed and to which the insured must submit or does
  submit with [Mt. Hawley’s] consent . . . .”

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¶ 17    In the policies at issue here, the obligation to pay costs is

  linked not to coverage, but to the defense of the case. Further, the

  costs/defense provision is physically separated (in the

  “supplementary payments” part of the policies) from the “coverage”

  and “exclusions” parts of the policies. The language and structure

  of the policies imply that the cost provisions “are separate from and

  in addition to the basic policy coverage, and, therefore, that [the

  insurer’s] obligation to pay such costs is unaffected by the fact that

  the policy does not cover [the insured’s] . . . conduct.” Mut. of

  Enumclaw v. Harvey, 772 P.2d 216, 219 (Idaho 1989).

¶ 18    Indeed, as was the case in Harvey, the

               [l]anguage in the policy of this case does not
               indicate that payment of costs is conditioned
               upon a final determination that the policy
               covers the insured’s conduct. The language of
               the policy says that the [insurer] will pay all
               costs taxed against the insured in any suit
               defended by the [insurer].
  Id.

¶ 19    To the same effect, in Pacific Employers Insurance Co. v. Alex

  Hofrichter, P.A., 670 So. 2d 1023 (Fla. Dist. Ct. App. 1996), the

  Florida District Court of Appeals said, in a closely analogous

  situation:



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           [W]e need go no further than the clear
           language of the insurance policy to conclude
           that in light of the insurer’s undertaking of
           [the insured’s] defense, it was obligated to pay
           the cost judgment which followed. This court
           has already held that the supplementary
           payments provision of a policy applies
           independent of whether or not there is
           coverage. The policy at issue contains no
           restrictions or limitations on that promise. . . .
           Once [the insurer] defended, substantive
           coverage was not necessary to trigger the
           obligation to pay costs taxed against the
           insured in any suit.

Id. at 1025 (citations omitted); see Prichard v. Liberty Mut. Ins. Co.,

101 Cal. Rptr. 2d 298, 312-13 (Cal. Ct. App. 2000) (“The cost claim

is not . . . a substantive replay of the indemnity issue. The policy,

in essence, obligates the insurer to pay the costs in any lawsuit it

defends. . . . [T]he supplementary payments provision providing all

‘costs taxed’ is a function of the insurer’s defense obligation, not its

indemnity obligation.”).2




2 These decisions were rendered in jurisdictions which, like
Colorado, recognize that the duty to defend is broader than the duty
to indemnify and depends on the allegations of a complaint. See,
e.g., Certain Underwriters at Lloyd’s of London v. Superior Court, 16
P.3d 94, 102 (Cal. 2001); Fun Spree Vacations, Inc. v. Orion Ins. Co.,
659 So. 2d 419, 421 (Fla. Dist. Ct. App. 1995); Hoyle v. Utica Mut.
Ins. Co., 48 P.3d 1256, 1264-65 (Idaho 2002).

                                   8
¶ 20   Persuaded by this rationale, we, like the district court,

  conclude that, having conducted MVH III’s defense in the

  arbitration proceedings, Mt. Hawley was, under the terms of the

  policies, obligated to pay MVH III’s portion of taxable costs.

¶ 21   In so concluding, we reject Mt. Hawley’s assertion that the

  policies’ cost provisions were superseded by Mt. Hawley’s

  “reservation of rights” letter. Ordinarily, “a reservation of rights

  letter can only preserve rights already agreed to by the parties.”

  Huntsman Advanced Materials LLC v. OneBeacon Am. Ins. Co., No.

  1:08-CV-00229-BLW, 2012 WL 480011, at *10-11 (D. Idaho Feb.

  13, 2012); see also Harvey, 772 P.2d at 220 (A reservation of rights

  “is not a destruction of the insured’s rights nor a creation of new

  rights for the [insurer]”; rather, “[i]t preserves that to which the

  parties had originally agreed.”).

¶ 22   There is, under Colorado law, an exception to this principle.

  In Hecla Mining, the supreme court stated that

             [t]he appropriate course of action for an
             insurer who believes that it is under no
             obligation to defend, is to provide a defense to
             the insured under a reservation of its rights to
             seek reimbursement should the facts at trial
             prove that the incident resulting in liability
             was not covered by the policy, or to file a


                                      9
             declaratory judgment action after the
             underlying case has been adjudicated.

  811 P.2d at 1089. This remedy, the supreme court said in Cotter,

  “allowed insurers . . . to seek reimbursement for defense costs if

  coverage ultimately did not exist under their policies.” 90 P.3d at

  8283; see Valley Forge Ins. Co. v. Health Care Mgmt. Partners, Ltd.,

  616 F.3d 1086, 1093 (10th Cir. 2015) (characterizing Hecla Mining

  and Cotter as “unmistakably indicat[ing] that Colorado law would

  allow an insurer to recover defense costs from its insured where it

  reserved the right to do so by letter, regardless whether the insurer

  also reserved that right in the underlying insurance policy itself”).

¶ 23   “Defense” costs are not, however, the same as “costs taxed

  against the insured.” Compare, e.g., Gelman Scis., Inc. v. Fireman’s

  Fund Ins. Cos., 455 N.W.2d 328, 330 (Mich. Ct. App. 1990)

  (“Defense is defined as that which is alleged by the party proceeded

  against in a suit as a reason why plaintiff should not recover or

  establish what he seeks. Thus, defense costs are monies expended


  3 The remedy balanced “the interests of both the insurers and the
  insureds by ensuring that the broad rule basing the duty to defend
  on the complaint will not require insurers to pay defense costs if the
  coverage ultimately does not exist under the policies.” Cotter Corp.
  v. Am. Empire Surplus Lines Ins. Co., 90 P.3d 814, 828 (Colo. 2004).

                                    10
to develop and put forth a theory that the defendant is not liable or

only partially liable for the plaintiff’s injuries.”) (citation omitted),

and Domtar, Inc. v. Niagara Fire Ins. Co., 563 N.W.2d 724, 738

(Minn. 1997) (“[D]efense costs” are “those expenses reasonably

necessary either to defeat liability or to minimize the scope or

magnitude of such liability.”),4 with AXA Versicherung AG v. N. H.

Ins. Co., 769 F. Supp. 2d 623, 625 (S.D.N.Y. 2011) (“Taxable costs

are available to the prevailing party.”), and Barry v. Ariz. Dep’t of

Econ. Sec., 542 P.2d 1138, 1139 (Ariz. Ct. App. 1975) (“[I]mposition

of Taxable costs [are] for authorized expenses normally allowable to

a prevailing party as taxable court costs.”), and Cross v. Elliot, 69

Me. 387, 388 (1879) (“The law assumes that, all things considered,

the taxable costs shall indemnify the prevailing party for his

expenses and losses in the litigation.”). The Hecla Mining remedy of

recouping “defense” costs would not extend, then, to recouping (or

not, in the first instance, having to pay) “costs taxed against the

insured.”


4 Mt. Hawley understood “defense costs” in the same manner: it
reserved the right “to seek and to pursue reimbursement from its
insureds or any of them of the attorneys’ fees and costs it may incur
in the future in providing a defense under reservation of rights.”

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¶ 24   Finally, we reject Mt. Hawley’s assertion that our

  interpretation of the policies leads to absurd results. See Harvey,

  772 P.2d at 219 (“[I]t is arguable that since the [insurer] has the

  right to control the defense, including the power to refuse

  settlement, it should also bear the consequences of its case

  management decisions, including the consequence that the trial

  court may tax the opponent’s costs against the insured.”).

¶ 25   Mt. Hawley agreed in its policies to pay all costs taxed against

  MVH III in any suit in which it defended MVH III. If Mt. Hawley

  wished to retain a right to seek reimbursement of those costs “in

  the event it later is determined that the underlying claim [was] not

  covered by the policy, [it was] free to include such a term in its

  insurance contract.” Gen. Agents Ins. Co. of Am. v. Midwest Sporting

  Goods Co., 828 N.E.2d 1092, 1103 (Ill. 2005) (emphasis added);

  accord Blue Cross of Idaho Health Serv., Inc. v. Atl. Mut. Ins. Co., 734

  F. Supp. 2d 1107, 1113 (D. Idaho 2010); Harvey, 772 P.2d at 220.

  Mt. Hawley did not do so here, and this court “cannot now ride to

  the rescue.” Aetna Cas. & Sur. Co. v. Pintlar Corp., 948 F.2d 1507,

  1513 (9th Cir. 1991) (noting that “[i]f an insurer intends the term




                                     12
  ‘damages’ to be construed in a legal technical way, it should

  indicate that in the policy”).5

                           III.     Conclusion

¶ 26   The judgment is affirmed.

       JUDGE FURMAN and JUDGE HARRIS concur.




  5 Mt. Hawley’s reliance on Bohrer v. Church Mutual Insurance Co.,
  12 P.3d 854 (Colo. App. 2000), as grounds for a contrary conclusion
  is misplaced. In Bohrer, the division did not interpret the provisions
  of an insurance policy. Instead, it dealt with a punitive damage
  award, which would be against public policy for the insurer to
  cover. Id. at 856. The division concluded that, even assuming the
  policy’s language required the insurer to do something, it would be
  unenforceable on these grounds. Id. at 856-57. Unlike the
  situation in Bohrer, we perceive no public policy that would be
  violated as a result of our interpretation of the policies at issue
  here.

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