129 P.3d 1028

NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS. A PETITION FOR REHEARING IN THE COURT OF APPEALS OR A PETITION FOR CERTIORARI IN THE SUPREME COURT MAY BE PENDING.

Colorado Court of Appeals,
Div. IV.
Doug T. HOANG, Hieu T. Van, Gregory Storbakken, Joan Storbakken, Allan Walts,
and Marsha Walts, Plaintiffs-Appellees,
v.
MONTERRA HOMES (POWDERHORN) LLC, a Colorado limited liability corporation,
Defendant-Appellee,
and
Assurance Company of America, a New York corporation, and Maryland Casualty
Company, a Maryland corporation, Garnishees-Appellants.
No. 02CA2544, 03CA0379.
Feb. 24, 2005.
As Modified on Denial of Rehearing May 12, 2005.

Background: After homeowners successfully sued home builder to recover damages to homes resulting from soil problems, homeowners brought garnishment proceeding against insurers who had issued comprehensive general liability policies to home builder. The Jefferson County District Court, Frank Plaut, J., entered judgment in favor of homeowners, and insurers appealed.

Holdings: The Court of Appeals, Kapelke, J., sitting by assignment, held that:
(1) fact that insurers could not take oral depositions did not violate their procedural rights;
(2) trial court applied proper legal standard in determining that home builder's conduct met policies' definition of "occurrence";
(3) trial court did not err in failing to give effect to the "earth movement" exclusion contained in policies;
(4) home owners were entitled to award of attorney fees; and
(5) noneconomic damages were not covered under policies.

Affirmed in part, reversed in part, and remanded.


[1]

189 Garnishment
189VI Proceedings to Support or Enforce
189k166 Trial of Issues Between Plaintiff and Garnishee
189k169 k. Preliminary Proceedings. Most Cited Cases

The fact that insurers in a garnishment proceeding were not allowed to take oral depositions did not violate their procedural rights; insurers were permitted to call or cross-examine witnesses, and insurers failed to demonstrate how additional discovery would have affected the outcome of the garnishment trial.

[2]

189 Garnishment
189VI Proceedings to Support or Enforce
189k122 Grounds of Objection and Defenses by Garnishee
189k127 k. Defenses as Against Defendant in General. Most Cited Cases

A garnishment proceeding is an appropriate context for resolving coverage issues in a third-party insurance case, and in such a proceeding, the court must determine whether the damages sustained were the result of a risk or hazard for which the insured had policy coverage.

[3]

189 Garnishment
189VI Proceedings to Support or Enforce
189k159 Evidence as Between Plaintiff and Garnishee
189k162 k. Presumptions and Burden of Proof. Most Cited Cases

In a garnishment proceeding, the judgment creditor attempting to collect on the judgment debt bears the burden of proving the existence and validity of the indebtedness of the garnishee. Rules Civ.Proc., Rule 103.

[4]

189 Garnishment
189VI Proceedings to Support or Enforce
189k118 k. Mode and Form of Proceeding as Between Plaintiff and Garnishee. Most Cited Cases

189 Garnishment
189VI Proceedings to Support or Enforce
189k122 Grounds of Objection and Defenses by Garnishee
189k127 k. Defenses as Against Defendant in General. Most Cited Cases

In a garnishment proceeding, the garnishee is treated in the same manner as if it had been sued directly on the debt by the judgment debtor and is thus entitled to deny the indebtedness to the judgment debtor, to engage in discovery, and to have a hearing at which the judgment creditor must prove the allegations by a preponderance of the evidence. Rules Civ.Proc., Rule 103.

[5]

157 Evidence
157XII Opinion Evidence
157XII(B) Subjects of Expert Testimony
157k508 k. Matters Involving Scientific or Other Special Knowledge in General. Most Cited Cases

The parties in a garnishment proceeding may offer expert testimony and also may rely on portions of the record in the underlying tort case.

[5]

189 Garnishment
189VI Proceedings to Support or Enforce
189k159 Evidence as Between Plaintiff and Garnishee
189k163 k. Admissibility. Most Cited Cases

The parties in a garnishment proceeding may offer expert testimony and also may rely on portions of the record in the underlying tort case.

[6]

30 Appeal and Error
30XVI Review
30XVI(H) Discretion of Lower Court
30k961 k. Depositions, Affidavits, or Discovery. Most Cited Cases

Discovery rulings, including rulings limiting discovery, are within the discretion of the trial court and will not be disturbed on appeal absent an abuse of discretion.

[6]

307A Pretrial Procedure
307AII Depositions and Discovery
307AII(A) Discovery in General
307Ak19 k. Discretion of Court. Most Cited Cases

Discovery rulings, including rulings limiting discovery, are within the discretion of the trial court and will not be disturbed on appeal absent an abuse of discretion.

[7]

30 Appeal and Error
30XVI Review
30XVI(H) Discretion of Lower Court
30k961 k. Depositions, Affidavits, or Discovery. Most Cited Cases

An abuse of discretion by the trial court in making a discovery ruling occurs only if the trial court's decision is manifestly arbitrary, unreasonable, or unfair.

[8]

189 Garnishment
189III Proceedings to Procure
189k64 k. Mode and Form of Proceeding. Most Cited Cases

189 Garnishment
189VI Proceedings to Support or Enforce
189k118 k. Mode and Form of Proceeding as Between Plaintiff and Garnishee. Most Cited Cases

A garnishment proceeding is an expedited proceeding.

[9]

189 Garnishment
189VI Proceedings to Support or Enforce
189k166 Trial of Issues Between Plaintiff and Garnishee
189k170 k. Mode and Conduct in General. Most Cited Cases

Trial court in garnishment proceeding did not improperly prejudge the issue of whether the property damage at issue was caused by an "occurrence" within the meaning of comprehensive general liability policies, notwithstanding the court's statement that there had been an occurrence, where the court ultimately placed no restriction on the evidence that the insurers could offer, and also allowed them to present expert testimony to contradict or supplement plaintiffs' expert testimony.

[9]

388 Trial
388X Trial by Court
388X(A) Hearing and Determination of Cause
388k367 k. Power and Duty of Court in General. Most Cited Cases

Trial court in garnishment proceeding did not improperly prejudge the issue of whether the property damage at issue was caused by an "occurrence" within the meaning of comprehensive general liability policies, notwithstanding the court's statement that there had been an occurrence, where the court ultimately placed no restriction on the evidence that the insurers could offer, and also allowed them to present expert testimony to contradict or supplement plaintiffs' expert testimony.

[10]

217 Insurance
217XVII Coverage--Liability Insurance
217XVII(A) In General
217k2273 Risks and Losses
217k2275 k. Accident, Occurrence or Event. Most Cited Cases

Trial court applied proper legal standard in garnishment proceeding in determining that insured home builder's conduct that gave rise to home buyers' damage award met the comprehensive general liability policy definition of "occurrence"; although builder may have known of the risk to homes from soil problems, trial court properly focused on builder's knowledge, actions, and intentions, which indicated that builder did not expect or intend property damage to occur.

[11]

217 Insurance
217XV Coverage--in General
217k2096 Risks Covered and Exclusions
217k2101 k. Accident, Occurrence, or Event. Most Cited Cases

The term "occurrence" is to be broadly construed against the insurer.

[12]

217 Insurance
217XV Coverage--in General
217k2096 Risks Covered and Exclusions
217k2101 k. Accident, Occurrence, or Event. Most Cited Cases

An "accident" has been defined in insurance policies as an unanticipated or unusual result flowing from a commonplace cause.

[13]

217 Insurance
217XV Coverage--in General
217k2096 Risks Covered and Exclusions
217k2101 k. Accident, Occurrence, or Event. Most Cited Cases

It is the knowledge and intent of the insured that make injuries or damages expected or intended rather than accidental.

[14]

217 Insurance
217XVII Coverage--Liability Insurance
217XVII(A) In General
217k2261 k. Public Policy Limitations in General. Most Cited Cases

Trial court in garnishment proceeding did not improperly apply the known loss doctrine and prevent insurers from developing facts relating to the doctrine; trial court found that insured home builder did not have actual knowledge of a covered loss or of any legal obligation to pay damages to a third party in connection with a loss, before the inception date of any of the comprehensive general liability policy periods.

[15]

217 Insurance
217XV Coverage--in General
217k2096 Risks Covered and Exclusions
217k2101 k. Accident, Occurrence, or Event. Most Cited Cases

Under the "known loss" doctrine, insurance coverage will not be defeated unless, at the time it entered into the insurance contract, the insured had a legal obligation to pay damages to a third party in connection with a loss.

[16]

217 Insurance
217XVII Coverage--Liability Insurance
217XVII(B) Coverage for Particular Liabilities
217k2359 Manufacturers' or Contractors' Liabilities
217k2362 k. Particular Exclusions. Most Cited Cases

Trial court in garnishment proceeding erred as a matter of law in failing to give effect to the "earth movement" exclusion contained in home builder's comprehensive general liability policies for the last three of the five years at issue; plain language of policies indicated the builder's policy excluded coverage for damages from shifting, eroding, rising, tilting, or any other movement of land, and even if water pressure caused the soil expansion or movement that caused damage in this case, it was still the movement of land that contributed to the damage.

[17]

217 Insurance
217XIII Contracts and Policies
217XIII(J) Modification of Policies
217k1874 k. Endorsements or Attachments. Most Cited Cases

217 Insurance
217XIII Contracts and Policies
217XIII(L) Renewal
217k1903 k. Terms, Conditions and Subject Matter. Most Cited Cases

Record in garnishment proceeding demonstrated that each of five comprehensive general liability policies at issue was a renewal policy, and therefore, endorsements were not subject to the acceptance requirements under Code of Regulations; insurers were therefore not barred from relying on exclusion because it was purportedly not properly appended to the policies. 3 Colo. Code Regs. § 6-1-1(4)(A).

[18]

217 Insurance
217XIII Contracts and Policies
217XIII(L) Renewal
217k1904 k. New Policies as Separate Policies. Most Cited Cases

A renewal policy is just as much a new contract as if issued on a form carrying a different number than the original policy.

[19]

30 Appeal and Error
30XVI Review
30XVI(F) Trial De Novo
30k892 Trial De Novo
30k893 Cases Triable in Appellate Court
30k893(1) k. In General. Most Cited Cases

The interpretation of an insurance contract is a matter of law, which the trial court reviews de novo.

[20]

217 Insurance
217XIII Contracts and Policies
217XIII(G) Rules of Construction
217k1805 k. In General. Most Cited Cases

217 Insurance
217XIII Contracts and Policies
217XIII(G) Rules of Construction
217k1836 k. Favoring Coverage or Indemnity; Disfavoring Forfeiture. Most Cited Cases

An insurance policy must be construed in favor of coverage where provisions within the policy are ambiguous or conflicting; however, courts should avoid disrupting the parties' settled expectations as expressed or implied in the insurance policy.

[21]

217 Insurance
217XIII Contracts and Policies
217XIII(G) Rules of Construction
217k1863 k. Questions of Law or Fact. Most Cited Cases

Whether an insurance policy is ambiguous is a question of law.

[22]

217 Insurance
217XIII Contracts and Policies
217XIII(G) Rules of Construction
217k1822 k. Plain, Ordinary or Popular Sense of Language. Most Cited Cases

Where a policy is unambiguous, courts must accord its contract terms their plain and ordinary meanings.

[23]

217 Insurance
217XVII Coverage--Liability Insurance
217XVII(A) In General
217k2273 Risks and Losses
217k2278 Common Exclusions
217k2278(20) Products and Completed Operations Hazards
217k2278(21) k. In General. Most Cited Cases

217 Insurance
217XVII Coverage--Liability Insurance
217XVII(B) Coverage for Particular Liabilities
217k2359 Manufacturers' or Contractors' Liabilities
217k2362 k. Particular Exclusions. Most Cited Cases

Subcontractor exception to the "your work" exclusion in home builder's comprehensive general liability policies did not render the earth movement exclusion ambiguous and therefore unenforceable, inasmuch as application of the earth movement exclusion did not depend on who performed the work.

[24]

217 Insurance
217XVII Coverage--Liability Insurance
217XVII(A) In General
217k2263 Commencement and Duration of Coverage
217k2265 k. Continuous Acts and Injuries; Trigger. Most Cited Cases

Trial court in garnishment proceeding did not erred by "frontloading" the damages to homes from soil movement to the first two comprehensive general liability policy periods to minimize any effect of the earth movement exclusion; expert witness testified that most of the expense of repairing the foundations to damaged homes resulted from the initial damage that occurred early.

[25]

217 Insurance
217XVII Coverage--Liability Insurance
217XVII(A) In General
217k2263 Commencement and Duration of Coverage
217k2264 k. In General. Most Cited Cases

Trial court erred in garnishment proceeding by permitting certain plaintiff homeowners whose homes were damaged from soil movement to recover under comprehensive general liability policies that expired before they owned their homes; homeowners were not subrogated to the rights and claims of their predecessors in interest.

[26]

217 Insurance
217XVII Coverage--Liability Insurance
217XVII(A) In General
217k2263 Commencement and Duration of Coverage
217k2264 k. In General. Most Cited Cases

As a basic tenet of liability insurance law, a third party must suffer actual damage within the policy period to recover under a liability policy; thus, property owners do not experience any actual damage from faulty construction until they have purchased the property.

[27]

217 Insurance
217XVII Coverage--Liability Insurance
217XVII(A) In General
217k2267 Insurer's Duty to Indemnify in General
217k2270 Defense Costs, Supplementary Payments and Related Expenses
217k2270(1) k. In General. Most Cited Cases

Trial court in garnishment proceeding erred in holding that those attorney fees that were taxed as costs against home builder in underlying action by home owners against home builder, for soil damage to homes, were covered by home builder's comprehensive general liability policies; the fact that the trial court characterized statutorily authorized fee award as costs did not make insurers liable for them. West's C.R.S.A. § 6-1-113(2)(b).

[28]

102 Costs
102VIII Attorney Fees
102k194.10 k. In General. Most Cited Cases

Where attorney fees are authorized by statute, court rule, contract, or common law, they may be treated as either costs or damages; classification of attorney fees as costs or damages is a fact-sensitive inquiry and generally rests in the sound discretion of the trial court.

[28]

115 Damages
115III Grounds and Subjects of Compensatory Damages
115III(D) Expenses of Litigation
115k70 Attorneys' Fees, Costs, and Expenses of Litigation
115k71 k. Elements of Damages in General. Most Cited Cases

115 Damages
115III Grounds and Subjects of Compensatory Damages
115III(D) Expenses of Litigation
115k70 Attorneys' Fees, Costs, and Expenses of Litigation
115k71.5 k. Under Special Statutory Provisions. Most Cited Cases

115 Damages
115X Proceedings for Assessment
115k208 Questions for Jury
115k208(1) k. In General. Most Cited Cases

Where attorney fees are authorized by statute, court rule, contract, or common law, they may be treated as either costs or damages; classification of attorney fees as costs or damages is a fact-sensitive inquiry and generally rests in the sound discretion of the trial court.

[29]

189 Garnishment
189VI Proceedings to Support or Enforce
189k191 k. Costs and Attorney's Fees. Most Cited Cases

Plaintiff home owners who prevailed against home builder in underlying negligence action were entitled to an award of attorney fees incurred in prosecuting garnishment action against insurers who had issued comprehensive general liability policies to builder; as long as home builder could properly have sued insurers for the benefits under the policies, home owners could permissibly bring garnishment action, and rule of civil procedure provided authority for award of attorney fees. Rules Civ.Proc., Rule 103, § 8(b)(5).

[29]

217 Insurance
217XXXI Civil Practice and Procedure
217k3584 Costs and Attorney Fees
217k3585 k. In General. Most Cited Cases

Plaintiff home owners who prevailed against home builder in underlying negligence action were entitled to an award of attorney fees incurred in prosecuting garnishment action against insurers who had issued comprehensive general liability policies to builder; as long as home builder could properly have sued insurers for the benefits under the policies, home owners could permissibly bring garnishment action, and rule of civil procedure provided authority for award of attorney fees. Rules Civ.Proc., Rule 103, § 8(b)(5).

[30]

102 Costs
102VIII Attorney Fees
102k194.16 k. American Rule; Necessity of Contractual or Statutory Authorization or Grounds in Equity. Most Cited Cases

Under the American rule, a party is not ordinarily permitted to recover its attorney fees as costs or damages unless a statute, rule, or specific contract provision so permits.

[30]

115 Damages
115III Grounds and Subjects of Compensatory Damages
115III(D) Expenses of Litigation
115k70 Attorneys' Fees, Costs, and Expenses of Litigation
115k71 k. Elements of Damages in General. Most Cited Cases

Under the American rule, a party is not ordinarily permitted to recover its attorney fees as costs or damages unless a statute, rule, or specific contract provision so permits.

[31]

102 Costs
102VIII Attorney Fees
102k194.12 k. Discretion of Court. Most Cited Cases

Under the rule of civil procedure providing that at any hearing upon a traverse, the court shall make such orders as to reasonable attorney fees, costs, and expenses of the parties to such hearing as are just, an award of attorney fees is at the court's discretion. Rules Civ.Proc., Rule 103, § 8(b)(5).

[32]

217 Insurance
217XVII Coverage--Liability Insurance
217XVII(A) In General
217k2273 Risks and Losses
217k2277 k. Property Damage. Most Cited Cases

Noneconomic damages caused by property damage were not covered in home builder's comprehensive general liability policies for purposes of home owners' garnishment action against insurers; policies covered damages caused by physical injury to tangible property, which did not include noneconomic damages.
Vanatta Sullan Sandgrund & Sullan, P.C., Scott F. Sullan, Ronald M. Sandgrund, Joseph F. Smith, Greenwood Village, Colorado, for Plaintiffs-Appellee.
Holley Albertson & Polk, P.C., Dennis B. Polk, Golden, Colorado; Lottner Rubin Fishman Brown & Saul, P.C., Patrick J. Casey, Denver, Colorado, for Defendant-Appellee.
Hoffman Reilley Pozner & Williamson LLP, Sean Connelly, Eric Fisher, Denver, Colorado; Meckler Bulger & Tilson, Bruce Meckler, Christopher E. Kentra, Chicago, Illinois, for Garnishees-Appellants.
Hall & Evans, L.L.C., Chris A. Mattison, Denver, Colorado; Wiley, Rein & Fielding, LLP, Laura A. Foggan, Ian A. Ossakow, Washington, D.C., for Amicus Curiae Complex Insurance Claims Litigation Association.
Bennington Johnson Biermann & Craigmile, LLC, Kenneth R. Bennington, Kathleen E. Craigmile, Denver, Colorado, for Amicus Curiae Homeowners Against Deficient Dwellings (HADD).

KAPELKE [FN*], J.
*1

In this garnishment proceeding, garnishees, Assurance Company of America and Maryland Casualty Company (Insurers), appeal the judgment entered against them in favor of plaintiffs, Doug T. Hoang, Heiu T. Van, Gregory Storbakken, Joan Storbakken, Allan Walts, and Marsha Walts. The garnishment arises in connection with a judgment previously obtained by plaintiffs in this action against defendant, Monterra Homes (Powderhorn), LLC (Monterra), an insured under comprehensive general liability policies issued by Insurers. We affirm in part, reverse in part, and remand for additional proceedings.
Plaintiffs were purchasers of homes built by Monterra. The homes were constructed on a site that contained angled layers of Pierre shale and other soils, which, when exposed to water, expand and exert pressure on surface structures. Each of the homes suffered significant damage relating to the soil problems, and in this action plaintiffs asserted claims against Monterra for negligence, negligent misrepresentation, negligent nondisclosure or concealment, and violation of the Colorado Consumer Protection Act and the disclosure requirements of § 6-6.5-101, C.R.S.2004.
Before the trial of plaintiffs' claims against Monterra was concluded, Insurers filed a declaratory judgment action in federal district court seeking a determination of whether, and to what extent, the policies covered Monterra for the claims asserted by plaintiffs. Insurers did not serve plaintiffs or Monterra in the declaratory judgment action, however, until after the trial on plaintiffs' claims against Monterra.
In this action, the jury found in favor of plaintiffs and against Monterra on all the claims and awarded substantial damages. Following trial, plaintiffs served writs of garnishment upon Insurers, seeking to garnish Monterra's insurance policies for the full amount of their respective judgments.
In their answers to the garnishment writs, Insurers denied coverage. Plaintiffs thereafter filed a traverse, and the court set the garnishment matter for hearing.
Insurers filed a motion to strike the traverse and vacate the hearing or to stay the proceedings pending resolution of the federal declaratory judgment action or, in the alternative, for leave to engage in discovery. The court did not rule on the motion prior to the hearing.
At the hearing, Insurers argued that they had not been given the opportunity to conduct any discovery and that it would be unfair to require them to try the case without such discovery. The court ruled that it would allow the garnishment hearing to proceed and would determine after hearing the evidence whether discovery would be appropriate.
Plaintiffs presented expert and lay testimony of several witnesses, and the court admitted the transcribed testimony of eight witnesses from the underlying trial. The court expanded the time of hearing from two hours to four, and Insurers' counsel cross-examined all but one of the witnesses.
*2

At the end of the hearing, the court ruled that Insurers would be allowed to conduct limited written discovery, but would not be permitted to take any depositions. The hearing was then continued until October 7, 2002 to allow Insurers to cross-examine plaintiffs' final witness and to present their own case.
Insurers filed a petition in the supreme court pursuant to C.A.R. 21, asserting that they were being denied due process by the trial court. The supreme court denied the petition without comment.
At the continued hearing on October 1, 2002, Insurers were given approximately two hours to cross-examine plaintiffs' final witness, Monterra's manager, and to present Insurers' own evidence, including the testimony of their two expert witnesses. Also, the parties stipulated to admission of the entire transcript of the trial of plaintiffs' claims against Monterra.
Following legal argument presented at a later hearing, the court ruled that the insurance policies provided coverage for all the damages that had been awarded by the jury against Monterra in the underlying action and entered judgment for plaintiffs on their traverse of Insurers' answers to the writ of garnishment.

I.