The Bolt Factory Lofts in the Santa Fe Arts District of Denver are condominiums that were converted from an old factory in 2007. Construction defects led the Bolt Factory Lofts Owners Association to bring a 2016 lawsuit against a group of contractors, who then filed third-party complaints against various subcontractors, including Denver-based Sierra Glass Co.* All parties settled their disputes outside of court, except Sierra Glass, so their case continued.

This seemingly garden-variety dispute led a divided Colorado Supreme Court to issue a groundbreaking decision on a unique legal question earlier this week.

At issue was a pre-trial arrangement entered into by Sierra Glass with the condo owners that it would not present any defense at trial, would not be personally liable for the eventual $2.49 million judgment in the case and would give the condo owners the right to recover the monies from the insurance company along with bad faith penalties.

Sierra Glass took this unusual action of “not fighting” because its insurer, Auto-Owners Insurance Co., had allegedly agreed to defend it but then refused to pay a $1.9 million settlement agreement, an amount within the policy limits. Sierra Glass did not want to be forced into a potentially ruinous trial by its own insurer. So, Sierra Glass threw up their proverbial arms and tried to walk away from the matter; Auto-Owners Insurance attempted to intervene in the case to challenge the validity of the pre-trial agreement but its motion to do so was denied by the trial judge.

The Colorado Supreme Court took up the thorny legal issue of “where a defendant-insured enters into an agreement before trial assigning its rights to any future bad faith claims against its insurer to a third-party plaintiff, is the insurer entitled to intervene at trial under (the Colorado statute) to exercise its “absolute right” to control the defense of its insured under a reservation of rights”?

The Court, divided 4-3, ruled against the insurer saying, “the insurer’s interest in the litigation was not impaired because the insurer may sufficiently protect its interest in a subsequent proceeding.” The court said that Auto-Owners may proceed with a declaratory judgment action regarding coverage and may defend itself in any bad faith action brought the condo owners. It also ruled that the trial court may require the use of a stipulated judgement in a pre-trial agreement, rather than proceed with an uncontested trial, as was the case here.

The decision drew a blistering dissent that did not like the showmanship of Sierra Glass’ non-defense and said, “Make-believe or pretend play is fine in daycare centers and elementary schools. But it has no place in a court of law.”

The attorney for the condo owner plaintiffs told the legal journal Law360 that “The court’s ruling preserved the right of a policyholder to avoid the harm of an insurer’s bad faith by entering a protective settlement agreement. Allowing the insurer to intervene would have done the opposite and compounded the harm to the insured.”

The full text of the decision of the Colorado Supreme Court is at https://www.courts.state.co.us/userfiles/file/Court_Probation/Supreme_Court/Opinions/2019/19SC664.pdf

*Updated and corrected from any earlier version.

2 Comments

  1. I’m glad I’m not a lawyer or an insurance man. This mess gave me a migraine trying to understand it. I’ll stick to glasswork, thank you.

  2. Sierra Glass had a duty to help Auto Owners defend the claim until the end. How did they get to dictate the terms? What insurance company would insure a business who would do that to their protector? I suspect Sierra Glass’ insurability and/or bondability will be seriously impaired moving forward.

Comments are closed.