Tred R. Eyerly | Insurance Law Hawaii
The Colorado Supreme Court determined that the insurer defending under a reservation of rights could not intervene in the underlying case after the insured assigned its rights to any bad faith claim against the insurer. Auto-Owners Ins. Co. v. Bolt Factory Lofts Owners Ass’n, Inc., 2021 Colo. LEXIS 365 (Colo. May 24, 2021).
Bolt Factory initiated a construction defects lawsuit against various contractors. Several defendants filed third-party complaints against subcontractors, including Sierra Glass Company. Auto-Owners agreed to defend its insured, Sierra Glass, under a reservation of rights. Auto-Owners declined to settle with Bolt Factory for $1.9 million, within policy limits. Sierra Glass then retains independent counsel and entered into a settlement with Bolt Factory. The settlement allowed Sierra Glass to assign its bad faith claims to Bolt Factory in exchange for the right to pursue the insurer for payment of the excess judgment rather than Sierra Glass. Instead of entering into a stipulated judgment, Bolt Factory and Sierra Glass proceeded to an abbreviated trial.
The parties submitted proposed findings of fact and conclusions of law. Sierra Glass did not present a defense. Auto-Owners sought to intervene to protect its interest in the non-adversarial trial. The lower court denied Auto-Owner’s motion. The court entered judgment in favor of Bolt Factory and against Sierra Glass in the amount of $2.4 million. The court of appeals affirmed. The Supreme Court granted Auto-Owners’ petition for certiorari review.
The Colorado Supreme Court found that the agreement between Sierra Glass and Bolt Factory was permissible under Colorado law. Faced with Auto-Owners’ refusal to settle within policy limits, Sierra Glass took steps to protect itself by entering into an agreement with Bolt Factory – an agreement that included both an assignment of claims and a covenant not to execute. The lower court had discretion of requiring the parties to agree to a stipulated judgment or proceed to an uncontested trial where the court itself determines damages.
Auto-Owners was not allowed to intervene because its interests in the litigation were not impaired. Auto-Owners could sufficiently protect its interests in a subsequent declaratory judgment action regarding coverage. Auto-Owners could also raise its claims and defenses in any bad faith action that Bolt Factory might bring against Auto-Owners pursuant to the assignment of claims.
The judgment of the court of appeals was affirmed.