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Scott's Liquid Gold, Inc. v. Lexington Ins. Co.

ELR Citation: 30 ELR 20661
Nos. No. Civ.A. 97-B-107, 97 F. Supp. 2d 1226/(D. Colo., 05/31/2000)

The court holds that under Colorado law, the insurer of a manufacturer that contributed to the contamination of groundwater surrounding the Rocky Mountain Arsenal must pay the manufacturer $392,286 in unreimbursed settlement payments, but the insurer need not pay $373,158 of the manufacturer's unreimbursed defense costs. After discovery of contamination at the manufacturer's plant, the manufacturer agreed to pay the U.S. Army $6 million and the county water district $200,000 for its share of the response costs. The insurer refused to indemnify the manufacturer, and the manufacturer brought suit. The insurer was found to have a duty to defend the manufacturer, but damages issued remained.

The court first holds that it will apply the "time on the risk" method to allocate to the insurer an amount of the manufacturer's unreimbursed settlement payments. Under Colorado law, where, as here, property damage is gradual, long-term, and indivisible, the time on the risk method is used. Under this method, liability is determined by dividing the total amount of liability by the number of years of contamination. The court then holds that the period across which damages allocable to the insurer will be calculated is 1976 to 1988, or 13 years. The contamination began in 1976, and the manufacturer discovered the contamination in 1988 when consultants tested the soil and groundwater at the plant. Therefore, the court divides the total amount paid by the manufacturer, $6,312,286, by 13. Based on these calculations the insurer is obligated to pay $485,560, but the amount is reduced to the manufacturer's unreimbursed liability of $393,286.

The court next holds that the manufacturer's unreimbursed defense costs cannot be recovered. Such costs were covered by other underlying insurance policies, but the manufacturer did not submit them to its other insurers for fear of jeopardizing settlement with those insurers. Under such circumstances, the insurer is not liable. The court then holds that the manufacturer is not entitled to recover from the insurer the costs incurred in establishing the liability of other insurers. Under Colorado's theory for allocation of liability, the pick and choose method has been rejected. Thus, settlement payments are no longer set off in calculating an insurer's share of liability of a covered loss among multiple insurers. Therefore, there is no benefit to justify requiring an insurer to pay a share of the attorney fees and costs incurred in obtaining settlements. The court also holds that the manufacturer may recover its reasonable attorney fees in seeking recovery from the insurer.

Counsel for Plaintiff
Steven W. Black
Holland & Hart
555 17th St., Ste. 2900, Denver CO 80201
(303) 295-8000

Counsel for Defendant
Chris A. Mattison
Hall & Evans
1200 17th St., Denver CO 80202
(303) 628-3300