On February 2, 2010, in a matter of first impression under Colorado law, the United States Court of Appeals for the Tenth Circuit held that an insurer has a duty to defend its insured when there are extrinsic allegations that provide a basis for coverage despite the fact that the filed complaint does not otherwise trigger an obligation to defend. Apartment Investment and Management Company (AIMCO) v. Nutmeg Insurance Company, 2010 WL 348032 (C.A. 10 (Colo.)). Colorado has traditionally followed the "complaint rule," sometimes called the "four corners" rule, under which a duty to defend is triggered only when the underlying complaint "alleges any facts that might fall within the coverage of the policy." Hecla Mining Co. v. N.H. Inc. Co., 811 P.2d 1083, 1089 (Colo. 1991).
In AIMCO, the insured tendered seven separate lawsuits to Nutmeg Insurance Company ("Nutmeg") seeking a defense under professional liability policies issued by Nutmeg after having been sued for its alleged involvement in a Ponzi scheme. Nutmeg refused to defend on the basis that none of the underlying complaints alleged "Wrongful Acts," which were covered under the terms of the policy. AIMCO then sued Nutmeg seeking a determination of coverage and damages for the breach of Nutmeg's duty to defend. The Colorado District Court analyzed each lawsuit separately, in relation to the terms of the Nutmeg policies, and concluded that no duty to defend existed based on the allegations of the individual lawsuits. AIMCO appealed to the U.S. Court of Appeals for the Tenth Circuit, claiming that a court may consider evidence outside of the individual complaints, namely the allegations of the other complaints, in making a coverage determination.
AIMCO argued that while the Colorado Supreme Court has held that an insurer cannot introduce extrinsic evidence to avoid its duty to defend, Colorado law also provides a basis for the proposition that an insurer cannot disregard its knowledge of facts that would create a duty to defend when those facts are not contained in the complaint. Relying on its decision in Pompa v. American Family Mutual Ins. Co., 520 F.3d 1139 (10th Cir. 2008), the Tenth Circuit created an exception to the long-standing complaint rule, holding that an insurer must consider allegations of which it is aware in parallel complaints if such allegations tend to show a duty to defend. The Court went on to say that "to hold otherwise would turn [the purpose of the complaint rule] on its head by allowing an insurer to use the complaint rule to refuse a defense it knows it has a duty to provide simply because certain facts pled in factually-related complaints are not pled in the particular complaint at issue. The complaint rule was never meant to be used by insurers as a shield in order to avoid a legitimate duty to defend." See, AIMCO, 2010 WL 348032 at 4.
The Tenth Circuit's ruling in AIMCO that an insurer cannot view the allegations contained in a single complaint in isolation when it is aware that multiple complaints arising from a common core of operative facts that, when read together, trigger coverage, significantly changes Colorado's duty to defend law. Although many of Cozen O'Connor's insurance clients already consider extrinsic facts and allegations supporting coverage in their coverage assessments, the AIMCO decision may well impact current and future coverage decisions, especially in cases where an insured is sued for the same act, in different jurisdictions, by different Plaintiffs who style their complaints differently.
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