03 November 2016

Appeals court affirms carrier’s duty to pay costs taxed against insured in construction defect suit

One of the key reasons for builders to maintain liability insurance is to cover the cost of hiring defense counsel and paying litigation costs in the event of a construction defect lawsuit. If a builder loses a lawsuit, it will typically be responsible for paying the plaintiff’s litigation costs. Today, the Colorado Court of Appeals clarified that the “supplementary payments” section of a standard Commercial General Liability (CGL) insurance policy covers such costs, even if the carrier has reserved the right to dispute whether it has a duty to indemnify the actual damages awarded.

This may seem counter-intuitive, insofar as a carrier may end up paying costs even if it does not cover the underlying loss, but the court’s decision is consistent with the plain language of the CGL form that most carriers use. Furthermore, while the court focused on the plain contract language without regard to public policy concerns, the decision may be seen to recognize the role that insurance defense counsel plays in the costs of litigation. If an insurance defense firm eschews offers of settlement and engages in aggressive discovery, for example, it may increase the insured’s chances of winning while also increasing the risk that the insured will face a larger cost bill at the end of the case. In such a scenario, it is fair and equitable to require the carrier to pay costs, regardless of any determination of coverage.

The opinion in Mt. Hawley Insurance Co. v. Casson Duncan Construction, Inc.2016COA164, is available on the court’s website.