Randy Barnhart

Postscript to the Trio of Bad Faith Cases

Insurers may attempt to defeat a statutory bad faith claim by submitting an unpublished opinion, Alarcon v. American Family Mutual, to support their arguments. But Alarcon predates Kisselman, a published opinion, and thus the court need not attempt to reconcile the cases. C.A.R 35(f) provides: “Those opinions designated for official publication shall be followed as precedent by the trial judges of the state of Colorado.” The implication is that those opinions not designated for official publication shall not be followed as precedent by trial courts. In any event, the Alarcon court noted that the insured’s damages were “undocumented,” but that does not mean that the statutory claims should be fully documented by way of a prior adjudication.

In any event, Schuessler, Vaccaro, and Kisselman, are all published opinions and thus authoritative by law, while Alarcon is neither. In Vaccaro, 275 P.3d at 753, the court expressly noted that “plaintiff submitted a claim to defendant seeking $75,000 in UIM benefits” then filed a statutory action. There was no prior arbitration or court judgment as to the “benefits owed”

Insurers will likely simply ignore Kisselman and Vaccaro, and tediously argue that the same facts that support summary judgment on a plaintiff’s common law bad faith claim also support summary judgment on his or her claim under §§ 10-3-1115-1116. But as the Vacarro court found, legal standards

derived from common law bad faith cases do[] not necessarily govern plaintiff’s claim under the Statutes. This is particularly true because the ‘fairly debatable’ defense goes as much to the knowledge or recklessness prong of common law bad faith as it does to unreasonable conduct. By contrast, the only element at issue in the statutory claim is whether an insurer denied benefits without a reasonable basis. Even if plaintiff’s claim for UIM benefits were ‘fairly debatable’ in the common law context, that would not alone establish that defendant's actions here were reasonable as a matter of law.

Vaccaro, 275 P.3d at 760 (internal citations omitted). And the Kisselman court added this explanation: a “claim brought under sections 10–3–1115 and 10–3–1116 and a common law bad faith claim” are not the same. The “statutes create a new private right of action for insureds in addition to and different from a common law bad faith claim. And the insured’s burden of proving that statutory claim is less onerous than that required to prove a claim under the common law for breach of the duty of good faith and fair dealing.”

If anything, statutory standards can prove up a common law bad faith claim. Am. Family Mut. Ins. Co. v. Allen, 102 P.3d 333, 344 (Colo. 2004) (the Unfair Claims Practices Act “may be used as valid, but not conclusive, evidence of industry standards. . . . If the reasonable investigation and denial of an insured’s claim is within the common knowledge and experience of ordinary people, then expert testimony is not required.”).

Contact my office if you have any questions about the importance of pleading both common law bad faith and statutory bad faith when an insurer wrongfully denies or delays a claim on your policy.

Kisselman - Lead Singer in the Trio of Recent Cases on Insurance Bad Faith

In conclusion to this series of posts, Kisselman should be singled out. Under the rubric, “New Private Right of Action,” the Kisselman court found that sections 10–3–1115 and 10–3–1116 are written in plain language that does not create any interesting escape hatches for unscrupulous insurance companies. That plain language:

demonstrates the General Assembly’s intent to create an express private right of action for violation of those statutory sections.

Thus, as noted above, section 10–3–1115(1)(a) provides:

A person engaged in the business of insurance shall not unreasonably delay or deny payment of a claim for benefits owed to or on behalf of any first-party claimant.

Further, section 10–3–1115(2) defines a standard for unreasonableness “for the purposes of an action brought pursuant to this section and section 10–3–1116.”

If, as insurance companies are tempted to argue, a prior court judgment of “benefits owed” were a prerequisite to a statutory action, no “standard for unreasonableness” would be required. Once a court judgment is obtained, any delay in satisfying the judgment is per se unreasonable.

Insurers ignore the fact that in any statutory bad faith action, the insurer can defend by alleging no benefits are owed, and if in fact no benefits are owed, the insurer may move for costs and attorney fees under C.R.S. § 10-3-1116(5)(“If the court finds that an action brought pursuant to this section was frivolous . . . the court shall award costs and attorney fees to the defendant.”).

What the insurers miss is the following question: how could any statutory action be frivolous if that action follows from a prior arbitration or court judgment finding that benefits are owed? The statutory construction advanced by insurance companies would render sections of the bad faith “benefits owed” statute a nullity, and such absurd results are avoided by good courts.

The Kisselman court continued:

Section 10–3–1116 then expressly creates a private right of action to obtain certain remedies for violations of section 10–3–1115. Thus, section 10–3–1116(1) provides:

A first-party claimant as defined in section 10–3–1115 whose claim for payment of benefits has been unreasonably delayed or denied may bring an action in a district court to recover reasonable attorney fees and court costs and two times the covered benefit.

Likewise, section 10–3–1116(4) states that “[t]he action authorized in this section is in addition to, and does not limit or affect, other actions available by statute or common law, now or in the future.” Thus, the plain language of the Statutes shows that the General Assembly intended to create an express private right of action for a violation of section 10–3–1115, in addition to and different from common law bad faith claims.

The Colorado General Assembly is presumed to be cognizant of all other statutes, and thus if the legislature intended to make an action under sections 10-3-1115 and 1116 dependent on a prior action or adjudication under section 10-4-609, as insurance companies are wont to argue, it would have said so. As the Kisselman court noted, Section 10-3-1116 provides that “the action authorized in this section is in addition to, and does not limit or affect, other actions available by statute.” That language directly contradicts the insurance company pet theory that the new private right of action is a derivative action, derivative to another statutory action.

Call the firm if you believe your insurance company is acting in bad faith.

Bad Faith Claims - a Trio of Important Cases - Part 4

Insurers may move for summary judgment on a statutory bad faith claim by arguing that C.R.S. 10-3-115 does not provide guidance for determining how or when UIM benefits are deemed to be “owed.” The argument is ridiculous. The relatively new cause of action created by the statutes does not presuppose a prior adjudication of benefits owed.

In Kisselman, 2011 WL 6091708, the court found that it was “the view of the General Assembly” that a statutory cause of action, in addition to the common law bad faith tort, “was necessary to curb perceived abuses in the insurance industry.” According to C.R.S. § 10-3-1115: “for the purposes of an action brought pursuant to this section and section 10-3-1116, an insurer’s delay or denial was unreasonable if the insurer delayed or denied authorizing payment of a covered benefit without a reasonable basis for that action.”

Significantly, the Kisselman court anticipated the ridiculous “benefits owed” argument:

section 10–3–1115(1)(a) provides that a “person engaged in the business of insurance shall not unreasonably delay or deny payment of a claim for benefits owed to or on behalf of any first-party claimant.” (Emphasis added.)

The clear import of this language shows that the General Assembly intended to prohibit conduct by insurers in their handling of claims for benefits owed to their insureds. Therefore, . . . insurers are statutorily prohibited from engaging in certain conduct—namely, acts of unreasonable delay or denial of payment of benefits, as defined in the statute—stemming from a claim for benefits. It follows that an insurer breaches this duty if it engages in post-effective date acts of unreasonable delay or denial regardless of when an insured originally made a claim for benefits under his or her insurance policy.

Kisselman, 2011 WL 6091708 (underscoring added). The court reiterated the relevant trigger: the issue is “whether any such conduct unreasonably delayed or denied payment of a claim for benefits owed” (underscoring added).

That is, the triggering event under the bad faith statutes is a claim for benefits made by the policy-holder to his or her insurer.

Bad Faith Claims - a Trio of Important Cases - Part 3

Pursuant to C.R.S. §10-3-1104(1)(h)(IV), an insurer is required to conduct a reasonable investigation based upon all available information, and so it may follow that an insurance company has wide latitude in the investigation of claims. But an insurer cannot deliberately narrow that latitude by refusing independently to investigate and discover information from sources available to it just because those same sources are also available to its insured, the policyholder.

In other words, an insurer cannot blame its own insured for what it had the wide latitude to accomplish. For example, in the underinsured context, if the insurer attends a mediation between its policyholder and the underinsured driver, information generated by that mediation, including any accident reports presented by the underinsured driver, are equally available to the insurer. The insurer can’t later allege that its policyholder should have produced that information in discovery on the policyholder’s subsequent bad faith claim against the insurer. Often, an insurer will attempt to argue lack of cooperation on the part of the policyholder on account of the supposed failure to produce in discovery what the insurer should have had by its own efforts to gather and to be aware of relevant information. I won’t let them get away with that trick, which only further confirms bad faith!