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Insurer ordered to defend real estate developer in title dispute

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American Family Mutual Insurance Co. had a duty to defend a real estate developer in connection with a title dispute under terms of its general liability policy, says an appeals court, in overturning a lower court ruling.

Colorado Springs, Colorado-based, KF 103-CV L.L.C., along with the Falcon, Colorado-based Woodmen Heights Metropolitan District, which is a quasi-municipal entity, initiated a title action in state court in Colorado Springs over the issue of an easement in connection with an intersection improvement project, according to last week's ruling by the 10th U.S. Circuit Court of Appeals in Denver in KF 103-CV, L.L.C. v. American Family Mutual Insurance Co.

The court denied the easement and characterized KF 103's and the district's behavior as “trespass and intentional damage to the neighbor's easement.” The court then invited the neighbors to file counterclaims in the case, which they did, in 2011 and 2012, according to the ruling.

KF 103 tendered claims in the case to Madison, Wisconsin-based American Family Mutual for defense costs under its general liability policy, which the insurer refused. KF 103 filed suit against the insurer in state court. American Family had the case removed to U.S. District Court in Denver in October, 2013.

In September 2014, that court ruled that American Family had no duty to defend KF 103 because the neighbors' counterclaims did not fall within its insurance coverage, and granted summary judgment to American Family.

The District Court held that the claims against KF 103 “resulted from expected or intended damage, and therefore fell outside the policy's coverage,” said the ruling. KF 103 appealed, and a three-judge panel unanimously overturned the lower court's ruling.

Under its policy, American Family had a duty to defend KF 1-3 against any neighbor who pled facts that potentially alleged an occurrence, said the appeals court panel.

“If any allegation can be read as an occurrence, then American Family bears a heavy burden to establish that the neighbors' counterclaims allege only 'expected or intended' damages and are therefore excluded from the policy,” said the ruling.

The counterclaims do fall within the policy, said the panel. Among the claims discussed, for instance, is one neighbor's claim that the value of her property had been “'greatly diminished.”

“These are allegations of damage to her tangible property as well as loss of use, and fall within the policy's coverage,” said the appeals court ruling.

The case was remanded to the lower court.