Randy Barnhart

Colorado Court of Appeals Makes Good Call

The Colorado Court of Appeals today sent a valentine to all honest insurance policy-holders:

DC-10 Entertainment, LLC,

Plaintiff-Appellant,

v.

Manor Insurance Agency.

At the outset, the court correctly noted that "there is no practical difference between an insurance broker and an insurance carrier."

In the trial court, the insurance broker won summary judgment on the ground that the agreement between the policy-holder and the third-party who sued the policy-holder "was similar to the agreement at issue in Serna v. Kingston Enterprises, where a division of this court affirmed the dismissal of a common law indemnity claim. 72 P.3d 376, 381 (Colo. App. 2002)." In Serna, "the parties agreed to a consent judgment for stipulated damages."

The injured third-parties agreed with the employee tort-feasor not to execute on the consent judgment, and "to share any funds recovered from the employer in excess of $1 million." The Serna court found that the "agreement was distinguishable from a valid Bashor agreement because there was no enforceable judgment against the employee." The Serna court stated that the agreement was “more akin to a profit-sharing agreement” than a valid Bashor agreement.

Because the agreement in today's opinion was not like the one in Serna, relevant parts are provided below to serve as a model perhaps of creative lawyering which favors honest policy-holders:

• DC-10 shall pay to Ms. Henderson the sum of $15,000, contributed by Founders, in partial settlement sought by Ms. Henderson in the Lawsuit.

• Any further damages arising from the claims in the Lawsuit, above the [$15,000 paid by Founders] shall be determined in a proceeding before [a designated arbitration judge] . . . . The parties agree that [the judge’s] damages determination shall be binding and non-appealable, and shall be entered as a judgment in the Lawsuit.

• DC-10 has previously initiated a proceeding against Manor [Insurance] to recover the full amount of the judgment obtained in the [Henderson] Lawsuit as well as all other damages resulting from Manor’s conduct. That action, filed in the District Court for the City and County of Denver, Colorado Case No. 2010CV8631, includes claims for negligence, negligent misrepresentation, and breach of fiduciary duty (hereinafter referred to as the “Negligence Action”).

• DC-10 hereby assigns to Ms. Henderson all rights, title, and interest it may have to proceeds, if any, recovered in the Negligence Action in collection of the judgment entered against DC-10 in the Lawsuit. DC-10 specifically retains its title and interest in, and the right to prosecute, claims for all other damages it has suffered due to Manor’s wrongful conduct.

• Ms. Henderson shall be responsible for payment of costs incurred in the Negligence Action.

• The parties agree that no settlement will be reached in the Negligence Action without the express consent of all of the parties hereto. The parties also agree [not to] unreasonably withhold consent to settlement of the Negligence Action.

• Any recovery in the Negligence [Action], after deduction of attorney fees and costs, shall be distributed as follows:

o Ms. Henderson shall receive the unpaid amount of the judgment in the lawsuit, including post-judgment interest, until fully paid;

o DC-10 shall then be paid any compensatory damages after the full judgment
amount, including post-judgment interest, has been paid; and,

o DC-10 . . . and Ms. Henderson . . . shall each receive 50 percent of all punitive damages awarded.

• So long as DC-10 fully and in good faith performs its obligations under this Agreement, Ms. Henderson covenants and agrees not to, directly or indirectly, execute or otherwise attempt to enforce or collect on any judgment resulting from the Lawsuit against DC-10.

• In the event this Agreement, or any part of it, is determined to be unenforceable, no party shall have any rights to pursue any claims or collect any amounts from any other party as a consequence of that determination.

• The parties expressly intend that the validity of this contract shall be determined by application of the Colorado Supreme Court’s decision in Bashor v. Northland Ins. Co., [29 Colo. App. 81,] 480 P.2d 864 (1970), and Nunn v. Mid-Century Ins. Co., 244 P.3d 116.

{more in my next post}

Insurers Routinely File "Dec" Actions Seeking No Coverage - Bad Faith?

Possibly. In State Farm Fire & Cas. Co. v. Trumble, 663 F. Supp. 317, 320 (D. Idaho 1987), the court stated: "The bad faith claim takes into account all of the activities of the insurer, including the filing of the declaratory judgment action, in an attempt to prove that there is no reasonable basis for denying the benefits of the policy and that the [insurer] had knowledge or reckless disregard in obtaining the knowledge of the lack of a reasonable basis for denying the claim."

Oppressive, Intimidating Claim Practices? - Still Bad Faith Even if Claim Fairly Debatable

Our neighbor state to the north answered the insurance law question: "Even though the insurer here had a 'fairly debatable' reason for not paying the claim in the first place, i.e., its belief that the loss was the result of arson, it cannot properly go beyond a reasonable denial of the claim and engage in unreasonable or unfair behavior to gain an unfair advantage. A 'fairly debatable' reason to deny a claim is not a defense against torts that may flow from engaging in oppressive and intimidating claim practices." Hatch v. State Farm Fire & Cas. Co., 842 P.2d 1089, 1099 (Wyo. 1992).

Bad Faith Claims - a Trio of Important Cases - Part 2

My last post on a trio of important Colorado cases governing bad faith claims concluded with the abuse by insurers of the "fairly debatable" doctrine in motions for summary judgment on both the common law and statutory bad faith actions by honest policy-holders.

Insurers pin high hopes on Zolman v. Pinnacol Assur., 261 P.3d 490, 499-500 (Colo. App. 2011), but the court in Schuessler dashed those hopes:

Pinnacol’s reliance upon Zolman for a different result is misplaced. That case does not stand for the proposition that proof of fair debatability allows judgment for the insurer as a matter of law in a bad faith case. . . . To the extent that Pinnacol contends its evidence of fair debatability defeated [the policy-holder's] bad faith claim, we conclude that this proposition would be true only if the evidence of the reasonableness of its conduct were undisputed, and only if a reasonable person could not reach the same conclusion as the jury, when viewing the evidence in the light most favorable to Schuessler.

Schuessler, 2012 COA 86, ¶¶ 39-42.

Just because an insurer comes forward with some evidence that its conduct was reasonable does not mean that a policy-holder is precluded from coming forward with evidence that State Farm’s conduct was unreasonable, even recklessly so. See Zolman, 261 P.3d at 497 (“What constitutes reasonableness under the circumstances is ordinarily a question of fact for the jury.”).

The insurer's abuse of the “fair debatability” doctrine would also have absurd consequences. If an insurer could win summary judgment merely by adducing some evidence that its claim investigation and handling was at some point reasonable, then the jury instruction on the defense of fair debatability would be a nullity. The issue would never reach the jury because insurers would prevail as a matter of law at the summary judgment stage or at the latest be granted a directed verdict each and every time. The law does not allow such absurd results.

Stay tuned (and if you have any questions, please contact the firm).

Bad Faith Insurance - Not Fairly Debatable

Recently, in Schuessler v. Wolter, 2012 COA 86 (May 24, 2012), the Colorado Court of Appeals rejected an effort by the insurer to hide behind the fair debatability doctrine.

The insurer asserted that the trial court erroneously denied its motion for directed verdict or judgment notwithstanding the verdict (JNOV) as a matter of law. The argument was that in a first-party bad faith claim, an insurer is entitled to JNOV when the insurer shows it "acted reasonably in denying a claim based on a defense that was fairly debatable." In effect, the insurer took the extreme position that "fair debatability is a complete defense to a bad faith claim, as a matter of law, so long as there is any evidence to support its denial" of the claim.

The appellate court rightly rejected the argument. The issue arose by way of a common law bad faith tort in the workers’ compensation context. To prove the tort, a covered claimant has to show that the insurer "acted unreasonably" and "did so with knowledge of or reckless disregard for the fact that no reasonable basis existed for its action." See e.g., Bankruptcy Estate of Morris v. COPIC Ins. Co., 192 P.3d 519, 524 (Colo. App. 2008).

The so-called fair dabatability doctrine comes into play because in Colorado it is reasonable for an insurer to consider and thus to contest a claim for insurance benefits as “fairly debatable.” The court explained the important point that "the defense of fair debatability is not a threshold inquiry that is outcome determinative as a matter of law; it is not necessarily sufficient, standing alone, to defeat a bad faith claim." In other words, some evidence that a claim for benefits is fairly debatability will not automatically defeat a bad faith tort brought subsequent to the denial of the original claim for benefits.

If the evidence of the insurer's reasonableness in denying the claim for benefits is disputed, the insurer's evidence of fair debatability will not, per se, defeat a bad faith tort. The appellate court found that reasonableness was in fact disputed, which made the matter one for the jury.

Download the Wolter opinion

Bad Faith Breach of Insurance Contract - Review

Recently, in Zolman v. Pinnacol Assur., 09CA1954 (Colo. App. Mar. 3, 2011), the Colorado court of appeals reviewed the judge-made law on the tort of bad faith breach of insurance contract. Below is a nice summary of bad faith law: 

Colorado has a well-developed body of appellate case law dealing with insurance bad faith claims. An insurer must deal in good faith with its insured. Am. Family Mut. Ins. Co. v. Allen, 102 P.3d 333, 342 (Colo.2004). “Due to the ‘special nature of the insurance contract and the relationship which exists between the insurer and the insured,’ an insurer's breach of the duty of good faith and fair dealing gives rise to a separate cause of action arising in tort.” Goodson v. Am. Standard Ins. Co., 89 P.3d 409, 414 (Colo.2004) (quoting Cary v. United of Omaha Life Ins. Co., 68 P.3d 462, 466 (Colo.2003)). This tort of bad faith breach of an insurance contract may arise in either a third-party or first-party context, but each context requires proof of a different standard of conduct. See Allen, 102 P.3d at 342.

The first-party context, as here, involves a bad faith claim against the insurer for its alleged misconduct with its own insured. Id. The insured must prove that (1) the insurer's conduct was unreasonable under the circumstances, and (2) the insurer either knowingly or recklessly disregarded the validity of the insured's claim. Goodson, 89 P.3d at 415 (citing Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1275 (Colo.1985)).

This standard “reflects a reasonable balance between the right of an insurance carrier to reject a non-compensable claim submitted by its insured and the obligation of such carrier to investigate and ultimately approve a valid claim.” Id. (quoting Savio, 706 P.2d at 1275).In assessing a bad faith claim, the reasonableness of an insurer's conduct is measured objectively based on industry standards. Allen, 102 P.3d at 343. Under Colorado law, it is reasonable for an insurer to challenge claims that are “fairly debatable.” See Savio, 706 P.2d at 1275 (quoting Anderson v. Cont'l Ins. Co., 271 N.W.2d 368, 377 (Wis. 1978)); Pham v. State Farm Mut. Auto. Ins. Co., 70 P.3d 567, 572 (Colo. App. 2003) (affirming summary judgment for insurers on insured's bad faith claim and holding insured's claim was fairly debatable where insurers had a reasonable belief they were not obligated under the applicable statute to pay UIM benefits during the pendency of a related case); Brennan v. Farmers Alliance Mut. Ins. Co., 961 P.2d 550, 556-57 (Colo. App. 1998) (affirming dismissal of insured's bad faith claims because insured's claims for PIP benefits were fairly debatable); Brandon v. Sterling Colo. Beef Co., 827 P.2d 559, 561 (Colo. App. 1991) (reversing a jury verdict in favor of an insured and holding as a matter of law that the insurer's actions in appealing an award of workers' compensation benefits to the Industrial Commission and to the Court of Appeals did not constitute bad faith because the insured's claims were fairly debatable and the insurer had reasonably relied on its own experts in pursuing the appeals); see also Sanderson v. Am. Family Mut. Ins. Co., --- P.3d ----, ---- (Colo. App. No. 09CA1263, Nov. 10, 2010) (affirming summary judgment for the insurer as a matter of law because the insured failed to show that a reasonable jury could have found that the insurer acted in bad faith).

Thus, an insurer will be found to have acted in bad faith only if it has intentionally denied, failed to process, or failed to pay a claim without a reasonable basis. Savio, 706 P.2d at 1275; Brandon, 827 P.2d at 561. Indeed, even if an insurer possesses a mistaken belief that a claim is not compensable, it may be within the scope of permissible challenge. Savio, 706 P.2d at 1275-76; Brandon, 827 P.2d at 561.

What constitutes reasonableness under the circumstances is ordinarily a question of fact for the jury. However, in appropriate circumstances, as when there are no genuine issues of material fact, reasonableness may be decided as a matter of law. Bankr.Estate of Morris v. COPIC Ins. Co., 192 P.3d 519, 524 (Colo.App.2008).

 Has your insurer acted unreasonably in handling your claim or by denying your claim? Remember this one general rule: insurance companies are in the business of collecting premiums and denying claims. Call my office any time about problems with how your insurance company is handling your claim.

Insurance Companies File Subrogation Claims Against Toyota

Several more insurance companies have joined Allstate in filing subrogation claims against Toyota for the monies the insurance companies have had to pay out to policy-holders on claims for personal injury and or property damage due to instances of sudden unintended acceleration.

Basically, subrogation is a legal tool by which insurance companies most typically, can recoup monies from the actual party at fault, here allegedly Toyota. The more the law finds and places legal liability on the party who is actually at fault--for the damages caused by product defects, for example, the more the legal system contributes to correcting or at least discouraging negligent conduct. See more about subrogation here, but always consult with an experienced and licensed attorney is and when you have issues involving your insurance policy.

According to the Insurance Journal:

The seven latest companies to bring such subrogation actions against Toyota are: American Automobile Insurance Co., Fireman's Fund Insurance Co., National Surety Corp., Ameriprise Insurance Co., IDS Property Casualty Insurance Co., Motorists Mutual Insurance Co. and American Hardware Mutual Insurance Co.

Their suits, brought in three separate filings, come nearly two weeks after it was disclosed that Toyota agreed to pay $10 million to settle legal claims from the family of a California state trooper and three relatives whose fatal car wreck in 2009 helped trigger the automaker's recalls.

Read the entire article here. Toyota continues to deny that there is any defect in any of their vehicles. Why then pay $10 million to the family of the state trooper? Avoid discovery? Preclude public scrutiny? Duck the method by which society uncovers the truth?