Colorado Makes It Impossible to Make an Additional Insured Against Its Own Negligence
Subrogation is an equitable remedy that allows an insurer to stand in the shoes of its insured and recover whatever it paid from a tortfeasor. It cannot, however, sue its own insured or sue when the right of subrogation is permissibly waived.
Because the State of Colorado has an anti-indemnification statute the Tenth Circuit, in Higby Crane Services, LLC; National Interstate Insurance Company v. National Helium, LLC, a Delaware company; DCP Midstream, LP, a Delaware limited partnership, United States Court Of Appeals Tenth Circuit, No. 16-271, No. 16-3279 (August 14, 2017) was called upon to determine if an insurer was entitled to subrogate against a party claiming to be insured by the same insurer.
Appellee/Cross-Appellant DCP Midstream, LP (“DCP”) negligently started a fire that damaged a crane belonging to Appellant/Cross-Appellee Higby Crane Services, LLC (“Higby”). At the time of the fire, the crane was located on the grounds of a gas processing plant (the “National Helium Plant”) owned by DCP’s wholly owned subsidiary, National Helium, LLC. Higby’s insurer, Appellant National Interstate Insurance Co. (“National”), paid for the damage under the terms of a commercial inland marine policy. National and Higby (collectively “Plaintiffs”) then sued DCP, seeking to recover the cost to repair the crane.
The district court granted DCP’s motion for summary judgment, concluding the anti-subrogation rule barred recovery by National against DCP because DCP was National’s insured under a commercial general liability policy that also covered the loss.
Additional facts detailing the genesis of this ongoing dispute between Plaintiffs and DCP are fully set out in this court’s prior opinion in this matter. Higby Crane Servs., LLC v. Nat’l Helium, LLC, 751 F.3d 1157, 1159-60 (10th Cir. 2014). Relevant to this appeal, Higby and DCP entered into an agreement titled Master Service Agreement (“MSA”) on November 1, 2001. One of those terms and conditions required Higby to “carry and pay for” commercial general liability (“CGL”) insurance coverage and to name DCP as an additional insured under the policy (the “Additional Insured Provision”).
In August 2008, DCP telephoned Higby and requested it to perform a job at the National Helium Plant (the “2008 Work Order”). A Higby crew began work on August 19, 2008, but was unable to complete the project because DCP did not have a required part. When the Higby crew arrived at the National Helium Plant the next day, it learned a flash fire had damaged Higby’s crane, rendering it inoperable. DCP concedes the fire was caused by its own negligence.
After the matter was removed from Kansas state court to federal district court, Plaintiffs filed a motion for summary judgment which was granted by the district court. In their motion, Plaintiffs argued, inter alia, that the anti-subrogation rule did not bar their claims against DCP because Higby owed no contractual duty to procure insurance covering DCP for the loss at issue.
Relying on a Colorado statute enacted in July 2007, Plaintiffs asserted Colorado law expressly prohibits any construction contract requiring one party to indemnify, insure, or defend another party against liability arising out of the negligence or fault of the indemnitee. Accordingly, Plaintiffs argued, any agreement between the parties requiring Higby to carry insurance covering DCP for DCP’s own negligence was unenforceable.
National claims a right of subrogation in this matter through Higby for amounts paid to Higby under the CIM Policy. DCP has consistently argued the anti-subrogation rule bars the claims raised in the suit because DCP is an insured of National under the CGL policy and the CGL Policy also covers the loss at issue.
Under the anti-subrogation rule, an insurer may not seek recovery against its insured on a claim arising from the risk for which the insured was covered. The district court identified the central question presented in the cross-motions for summary judgment as “whether the anti-subrogation rule prohibits [this] subrogation action against DCP for loss resulting from DCP’s negligence.”
Plaintiffs assert the CGL Policy cannot cover DCP for the loss at issue because the Additional Insured Provision is void under Colorado’s Anti-Indemnification Statute which bars a construction business from contracting out liability for its own negligence. Any provision in a construction agreement that requires one party to purchase insurance covering the other party for liability resulting from the other party’s own negligence is void as against public policy.
Because DCP concedes it is solely responsible for the fire that damaged Higby’s crane, if the Anti-Indemnification Statute applies to the operative contract between DCP and Higby the anti-subrogation rule is inapplicable because DCP is not covered by the CGL Policy for the loss at issue.
Because the 2008 Work Order was a new contract entered into after the effective date of the Anti-Indemnification Act, Higby’s agreement to obtain insurance covering DCP for DCP’s own negligence is void under Colorado law. Accordingly, National is not DCP’s insurer for purposes of the loss at issue and the anti-subrogation rule does not apply.
The work was performed at a gas processing plant. The 2008 Work Order meets the definition of a construction agreement. Colorado law prohibits DCP from contracting with Higby to obtain additional-insured coverage for liabilities arising from DCP’s own negligence. Thus, any promise Higby made in the 2008 Work Order to provide such coverage is unenforceable and the CGL Policy does not cover DCP under the circumstances of this case. Consequently, DCP is not National’s insured for the loss at issue and the anti-subrogation rule is inapplicable. Because DCP has conceded the damage to Higby’s crane was caused by its own negligence, the district court erred by denying Plaintiffs’ motion for summary judgment.
Colorado’s Anti-Indemnification Statute which bars a construction business from contracting out liability for its own negligence. As a matter of law, DCP cannot show that Higby breached its agreement to provide such coverage and it is unnecessary to remand this matter for further proceedings.
One must give credit to DCP for a good try. However, the anti-indemnification statute made it impossible for them to establish that they were an insured of National because the additional insured endorsement was void as a matter of law. Hopefully, DCP’s own insurer will now pay for the damage to the crane and stop making specious arguments.
This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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