June 22, 2018

Colorado Court of Appeals: Settlement Including Reduction for MedPay Amounts Enforceable Post-Calderon

The Colorado Court of Appeals issued its opinion in Arline v. State Farm Mutual Insurance Co. on Thursday, May 31, 2018.

Uninsured/Underinsured Settlement and Release Agreement—C.R.C.P. 12(b)(1) Dismissal.

Arline submitted claims to American Family Mutual Insurance Company (American) under insurance policies that provided $5,000 in MedPay coverage and $50,000 in individual underinsured motorist (UIM) coverage. American paid $5,000 in MedPay benefits on Arline’s behalf and negotiated Arline’s damages under her UIM coverage to be $27,000, after subtracting the $5,000 in MedPay benefits already paid. In November 2015, Arline, represented by counsel, accepted the $27,000 payment and signed a release agreement (Agreement) releasing American under the UIM policy.

In November 2016, the Colorado Supreme Court held for the first time in Calderon v. American Family Mutual Insurance Co., 2016 CO 72, that C.R.S. § 10-4-609(1)(c) prohibits insurers from reducing the UIM benefits paid on a claim by the amount of MedPay benefits paid on that claim, which the court deemed a “setoff.” (Counsel in that case now represents Arline.)  Arline then sued American for breach of contract and seeking class certification, asserting that American had unlawfully reduced UIM payments using a MedPay setoff. American responded that the Agreement was a complete bar to the cause of action and moved to dismiss. The district court found the Agreement enforceable and granted American’s motion to dismiss for lack of standing.

On appeal, Arline argued that the district court erred in dismissing her complaint because American’s payment pursuant to the Agreement caused her to suffer an injury-in-fact to a legally protected interest. Though the supreme court held that C.R.S. § 10-4-609(1)(c) prohibits policy provisions allowing a setoff from other coverage, it did not hold that the statute extended to settlement agreements. An insured may agree to a settlement and release as long as the terms do not violate statutory prohibitions or public policy. If a release agreement is valid, dismissal of claims encompassed by the agreement is proper. Here, Arline entered into the Agreement voluntarily while represented by counsel who was fully informed that certiorari had been granted in Calderon. She negotiated her damages benefits and agreed that the UIM benefit amount paid compensated her sufficiently to warrant releasing American from any further claims. In addition, Colorado public policy favors the settlement of disputes when the settlement is fairly reached. Arline signed a valid release agreement that is not void as against public policy or prohibited by statute. The district court properly dismissed her claim.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

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