The Colorado Supreme Court recently determined that an insurer defending under a reservation of rights has the right to intervene in the litigation after its insured assigns its rights to bad faith claims against the insurer. Auto-Owners Ins. Co. v. Bolt Factory Lofts Owners Ass’n, 2021 CO 32, 487 P.3d 276.
In the underlying Bolt Factory litigation, the insurer defended its insured in construction defect litigation, subject to a complete reservation of rights. The insurer rejected a settlement offer that was within its insured’s policy limits. The insured retained independent counsel and negotiated an agreement whereby the insured assigned its claims against the insurer to the plaintiff in exchange for the plaintiff’s agreement not to execute the judgment against the insured. This type of agreement is known as a Nunn agreement, permitted by the court’s prior decision in Nunn v. Mid-Century Ins. Co., 244 P.3d 116 (Colo. 2010). However, unlike Nunn, the parties in Bolt Factory did not enter into a stipulated judgment, choosing instead to proceed with an uncontested trial to determine liability and the amount of damages.