April 19, 2018

Colorado Court of Appeals: Excess Insurer Must Step Into Shoes of Insured and Plead Primary Bad Faith

The Colorado Court of Appeals issued its opinion in Preferred Professional Insurance Co. v. The Doctors Co. on Thursday, April 5, 2018.

Medical Malpractice—Primary Insurance Policy—Excess Insurance Policy—Equitable Subrogation —Bad Faith.

A medical malpractice suit was filed against Dr. Singh and other parties. The Doctors Company (TDC), the primary insurer, defended Dr. Singh in the suit as required by its primary liability policy. Preferred Professional Insurance Company’s (PPIC) insurance policy was an “excess policy,” which would cover any losses that exceeded TDC’s $1 million coverage up to an additional $1 million. As an excess insurer, PPIC did not have any duty to defend Dr. Singh in the suit. The plaintiff in the medical malpractice suit offered to settle the case with Dr. Singh for $1 million, the amount of TDC’s policy limits. Dr. Singh conveyed his desire to accept the settlement offer to both insurers, but TDC declined to settle the case. PPIC told Dr. Singh he should accept, and it paid the $1 million settlement. PPIC then filed suit against TDC for equitable subrogation to recover the amount paid. The district court granted summary judgment in PPIC’s favor without addressing TDC’s argument that PPIC was required to prove that TDC refused to settle in bad faith.

On appeal, TDC contended that the district court erred as a matter of law because an equitable subrogation claim brought by an excess insurer against the primary insurer to recover the amount paid in settlement can only be derivative of the insured’s rights. Thus, PPIC’s refusal to plead and present evidence that TDC acted in bad faith in declining to settle required dismissal of PPIC’s claim. An excess insurer seeking recovery under equitable subrogation for a primary insurer’s failure to settle a case against their mutual insured “steps in the shoes of the insured” and must plead and prove the primary insurer’s bad faith. Here, without an assertion that TDC acted in bad faith, PPIC’s equitable subrogation claim is not legally viable.

The order granting summary judgment for PPIC was reversed and the case was remanded for entry of judgment of dismissal in TDC’s favor.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Penalty of Two Times Covered Benefit for Insurance Bad Faith Upheld

The Colorado Court of Appeals issued its opinion in Nibert v. Geico Casualty Co. on Thursday, February 23, 2017.

Bad Faith—C.R.S. § 10-3-1116—Jury Instructions—Statutory Delay—Attorney Fees.

Nibert and her husband were injured when a car collided with their motorcycle. As relevant to this appeal, Nibert had an underinsured motorist (UIM) policy through Geico Casualty Co. (Geico) with a $25,000 coverage limit. Geico offered Nibert $1,500 to settle her claim.

Nibert sued Geico for breach of contract, common law bad faith, and statutory delay under C.R.S. § 10-3-1116. After discovery and before trial, Geico paid Nibert the $25,000 UIM coverage limit to settle the breach of contract claim.

A jury returned verdicts awarding Nibert $33,250 in noneconomic damages on her bad faith claim and $25,000 for her statutory delay claim. The trial court entered judgment on the jury’s verdict for the bad faith claim and judgment of $50,000 for damages on the statutory delay claim. It also granted Nibert’s motion for attorney fees in the amount of $118,875.30.

On appeal, Geico argued that the trial court failed to adequately instruct the jury on its theory of defense that challenges to debatable claims are reasonable. The trial court relied on the Colorado pattern jury instructions governing common law bad faith and first-party statutory claims. While it did not accept Geico’s tendered instructions on these issues, it allowed Geico to present expert testimony regarding the “fairly debatable” issue and to argue its theory of defense to the jury. The Colorado Court of Appeals concluded that the instructions, as given, adequately instructed the jury on the applicable law and the parties were afforded ample opportunity to present their case theories to the jury. The trial court’s ruling was neither manifestly arbitrary, unreasonable, or unfair, nor a misapplication of the law.

Geico then argued that the trial court erred in awarding Nibert recovery of two times her UIM benefit as a penalty. C.R.S. § 10-3-1116(1) provides a first-party claimant the right to bring an action for “two times the covered benefit.” Geico argued that the trial court should have allowed a setoff of the ultimate statutory damages award in the amount of $25,000 previously paid to Nibert on her UIM claim. The court agreed with other divisions that have concluded that a statutory damages award of two times a delayed benefit—even when that benefit has already been paid, resulting in an effective payment of three times the contracted benefit—is contemplated by the plain meaning of C.R.S. § 10-3-1116.

Geico also contended it was error to award attorney fees incurred to prosecute the common law bad faith and statutory delay claims, both before and after the date when payment of the UIM benefit was delayed. They argued the attorney fees should be limited to the period from the date the benefit was first delayed to the date the benefit was actually paid. The court found no support for Geico’s argument that the section does not contemplate an award of attorney fees incurred litigating anything other than a contractual claim or incurred for the time before and after a delayed benefit accrues and is paid.

The court also granted Nibert’s request for an award of her appellate attorney fees.

The judgment and order were affirmed, and the case was remanded for a determination of the amount of reasonable attorney fees and costs.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Death of Insurance Beneficiary Does Not Extinguish Action Where Judgment Entered

The Colorado Court of Appeals issued its opinion in Estate of Casper v. Guarantee Trust Life Insurance Co. on Thursday, November 17, 2016.

Cancer Insurance Policy—Jury Verdict—Punitive Damages—Noneconomic Damages—Judgment—C.R.S. § 14-20-101—Attorney Fees—Actual Damages—C.R.S. § 10-3-1116—Jury Instruction.

Casper bought a cancer insurance policy from defendant, Guarantee Trust Life Insurance Company (GTL). Casper was diagnosed with cancer seven months later, and GTL refused to pay his claims. Casper sued GTL for breach of contract, bad faith breach of an insurance contract, and statutory unreasonable denial of benefits. A jury awarded him punitive and other noneconomic damages. The trial court immediately entered an oral order making the verdict a judgment, but Casper died nine days later, before the court had reduced its oral order entering judgment to a written judgment as required by C.R.C.P. 58. Subsequently, Casper’s estate (Estate) was substituted as plaintiff. The court later entered a judgment for the estate nunc pro tunc to the date of the verdict. The court awarded attorney fees and costs as part of the Estate’s actual damages.

On appeal, GTL argued that as a matter of law, under C.R.S. § 13-20-11 (Colorado’s survival statute), the delay in entering the written judgment meant the Estate was entitled only to the $50,000 awarded as economic damages for the breach of contract claim. Under Colorado law, the death of a plaintiff in a personal injury action extinguishes his entitlement to recover noneconomic and punitive damages. Here, because the verdict resolved the merits of the case, and judgment would necessarily follow, the survival statute did not extinguish Casper’s right to damages.

GTL also asserted that attorney fees and costs awarded by the trial court under C.R.S. § 10-3-1116 do not constitute actual damages upon which the court may base its determination of punitive damages under C.R.S. § 13-21-102(1)(a). Under the plain meaning of C.R.S. § 10-3-1116, which is remedial in nature, reasonable attorney fees and court costs in this case are actual damages and do not constitute penalties or other types of damages.

GTL next asserted that the district court erred by not reducing by two-thirds the supplemental request for attorney fees. Even if apportionment was required, the district court did not abuse its discretion in awarding supplemental fees.

Finally, GTL argued that the trial court erred by instructing the jury on Regulation 4-2-3, which regulates advertising by the insurance industry. The trial court found that the instruction related to Casper’s theory that GTL’s marketing and sale of the insurance policy, through Platinum, was evidence of GTL’s bad faith. The standard of care related to the sale and marketing of the policy was relevant to Casper’s claims, and it is undisputed that the instruction was a correct statement of the law. Therefore, the court did not abuse its discretion in instructing the jury on this regulation.

The judgment was affirmed and the case was remanded to determine the Estate’s appellate fees and costs.

Summary provided courtesy of The Colorado Lawyer.

Tenth Circuit: Delay in Tendering Insurance Benefits Found Unreasonable

The Tenth Circuit Court of Appeals issued its opinion in Peden v. State Farm Mutual Automobile Insurance Co. on Tuesday, November 15, 2016.

Wendy Peden was among a group of friends drinking and celebrating the birthday of Terrell Graf’s fiancee. Mr. Graf gathered the friends into the van he had purchased for his fiancee, drove away, and crashed. Ms. Peden suffered serious injuries. She obtained $240,000 in insurance benefits, but claimed more in underinsured motorist benefits. State Farm initially denied the claim, but ultimately paid her $350,000, the maximum amount available. Ms. Peden sued State Farm for bad faith under Colorado common law and statutory law.

Ms. Peden argued in her claim for uninsured/underinsured motorist benefits that she had seven forms of injury totaling from $647,484.76 to $1,115,504.76. Ms. Peden sought benefits from a State Farm policy carried by Mr. Graf’s fiancee and also from her own State Farm policy. State Farm denied the claim, stating that the $240,000 she had received had fairly compensated her. When Ms. Peden brought suit against State Farm, it investigated further and ultimately paid her the maximum amount allowable under the policies. Ms. Peden continued to claim that State Farm had unreasonably delayed payment of benefits. State Farm moved for summary judgment, arguing that the handling of the claim was reasonable as a matter of law. Ms. Peden moved for partial summary judgment on her statutory bad faith claim. The district court granted State Farm’s motion, and Ms. Peden appealed.

The Tenth Circuit found that under Colorado law, all insurance contracts contain an implied duty of good faith and fair dealing, and that there is both a common law and statutory duty to handle claims in good faith. For an uninsured motorist claim involving a breach of the common law duty, the insured must prove that the insurer acted unreasonably under the circumstances and knowingly or recklessly disregarded the validity of the insured’s claim. A statutory claim includes a requirement that the insurer cannot “unreasonably delay or deny payment of a claim.” The Tenth Circuit examined industry standards and determined that State Farm had a duty to investigate the claim as diligently to prove its merit as it would to deny benefits, and had a duty to find all facts to try to understand the claimant’s medical condition. The Tenth Circuit found that in this case, State Farm had discredited Ms. Peden’s claim because she went for a ride with a drunk driver. Ms. Peden argued that she did not know Mr. Graf was drunk and she did not think he was going to drive the vehicle—she believed they were only getting in the van to take a group picture. State Farm did not interview Ms. Peden or otherwise investigate her story. The Tenth Circuit found that by failing to interview Ms. Peden, State Farm breached its duty.

The Tenth Circuit also found that State Farm unreasonably failed to investigate the total amount of damages before denying Ms. Peden’s claim. State Farm did not include any payment for future noneconomic damages, prejudgment interest, or wage loss in its initial valuation of the claim, and its tender of damages was between 24 and 42 percent of the amounts claimed by Ms. Peden. The Tenth Circuit found that a reasonable fact-finder could infer that State Farm failed to adequately investigate the damages that would have been available to Ms. Peden if she had sued Mr. Graf. The Tenth Circuit noted that State Farm could have consulted with a physician, asked Ms. Peden to submit to a physical examination, or interviewed her, and it did none of these things. The Tenth Circuit held that a fact-finder could question the reasonableness of this investigation.

The Tenth Circuit reversed the district court’s grant of summary judgment to State Farm. The Tenth Circuit vacated the district court’s denial of Ms. Peden’s partial summary judgment motion as moot, since it was no longer moot. The Tenth Circuit remanded to the district court for further findings.

Tenth Circuit: Fair Debatability Does Not Preclude Claim for Insurance Bad Faith

The Tenth Circuit Court of Appeals issued its opinion in Home Loan Investment Co. v. St. Paul Mercury Insurance Co. on Tuesday, July 5, 2016.

Ms. Rosemarie Glas owned a property in Grand Junction called White Hall with a mortgage through Home Loan Investment Co. When she stopped making payments on the loan, Home Loan accepted a deed in lieu of foreclosure from Ms. Glas in order to allow her to sell White Hall. Ms. Glas also informed Home Loan that she was unable to pay certain utilities and the insurance on the property. Home Loan contacted St. Paul to obtain insurance for the property, and completed a form from St. Paul by checking the option that it was the mortgagee in possession of the property. Later, there was a fire, and White Hall was almost completely destroyed. Home Loan submitted a claim to St. Paul for the value of the property, but St. Paul denied the claim, determining that Home Loan did not qualify as a mortgagee in possession and there was no foreclosure proceeding underway so there was no coverage.

Home Loan filed suit in Colorado state court, alleging claims for common law breach of contract and statutory bad faith pursuant to C.R.S. §§ 10-3-1115 and -1116. St. Paul removed the action to federal court, citing diversity jurisdiction. Prior to trial, St. Paul moved for summary judgment, but the district court denied the motion. At trial, St. Paul argued that Home Loan had never had “possession” or “care, custody, or control” sufficient to trigger coverage under the policy. St. Paul also argued that because its position was “fairly debatable,” it could not have acted unreasonably for purposes of the bad faith statutes. St. Paul renewed its motion for summary judgment and moved for judgment as a matter of law (JMOL) after Home Loan rested. The district court denied the motions. The jury returned a verdict for Home Loan on the common law breach of contract and statutory bad faith claims. St. Paul again moved for JMOL under F.R.C.P. 50(b), or, alternatively, a new trial under F.R.C.P. 59(a). The district court denied both motions, and St. Paul appealed to the Tenth Circuit on the statutory bad faith claim.

St. Paul raised three issues on appeal: (1) the district court erred in denying its motion for JMOL because its denial was reasonable as a matter of law, and the district court erroneously instructed the jury on assessing the standard for reasonableness; (2) C.R.S. §§ 10-3-1115 and -1116 only provide remedies for unreasonable claims handling activities, not underwriting practices; and (3) the district court erred in calculating the amount of damages under C.R.S. § 10-3-1116 because it awarded the covered benefit plus twice that amount as damages, for a total of three times the covered benefit. The Tenth Circuit examined and rejected each contention in turn.

The Tenth Circuit first addressed St. Paul’s argument that because its denial was “fairly debatable,” it was not unreasonable as a matter of law. Home Loan responded that fair debatability is only one factor in the overall reasonableness analysis. The Tenth Circuit noted that the question had not been addressed by the Colorado Supreme Court, but different panels of the Colorado Court of Appeals had answered the question differently. The Tenth Circuit remarked, though, that the Colorado Court of Appeals had expressly rejected the position advanced by St. Paul. The Tenth Circuit held that the district court did not err in denying St. Paul’s motion for JMOL on those grounds.

St. Paul next argued that C.R.S. §§ 10-3-1115 and -1116 only provide a remedy for claims-handling activities, not underwriting activities. The Tenth Circuit evaluated the statutes and found nothing to support St. Paul’s position. The Tenth Circuit instead held that the Colorado legislature intended to capture all aspects of the insurance relationship and provide a remedy for bad faith, regardless of whether the bad faith arose out of claims handling or underwriting.

Finally, St. Paul argue the district court erred in awarding three times the covered benefit. The Tenth Circuit again disagreed, reading the statute to provide for an award of the covered benefit plus two times that amount as a penalty.

The Tenth Circuit next addressed the argument raised by the dissent. The dissent would have granted JMOL because the evidence at trial did not support a finding that St. Paul acted unreasonably in denying Home Loan’s claim. The majority panel concluded that St. Paul neither forwarded a sufficiency of the evidence challenge before the district court nor argued sufficiency before the Tenth Circuit on appeal, and therefore the argument was waived. Although St. Paul advanced a Rule 50(a) argument at the close of Home Loan’s evidence, it argued a different issue on the hearing for its motion. Following the trial, St. Paul moved for JMOL under Rule 50(b), but the Tenth Circuit majority panel again found that the focus of St. Paul’s motion was not sufficiency of the evidence but rather the scope of the bad faith claim. Therefore, St. Paul’s sufficiency of the evidence challenge was not properly preserved.

The Tenth Circuit affirmed the district court. Judge Bacharach dissented.

Colorado Supreme Court: Ambiguity Must Exist Within Four Corners of Contract Before Looking at Extrinsic Evidence

The Colorado Supreme Court issued its opinion in Hansen v. American Family Mutual Insurance Co. on Monday, June 20, 2016.

Insurance—Ambiguity, Uncertainty, or Conflict—Persons Covered—Unfair Practices—Bad Faith—Penalties.

Respondent Hansen was injured in a motor vehicle accident and presented an underinsured motorist claim to petitioner American Family Mutual Insurance Company (American Family). As proof of insurance, Hansen offered lienholder statements issued to her by American Family’s local agent that identified her as the named insured at the time of the accident. American Family’s own records, however, indicated that the named insureds on the policy at the time of the accident were Hansen’s mother and stepfather. In reliance upon the policy as reflected in its own records, American Family determined that Hansen was not insured under the policy and denied coverage. Hansen filed an action against American Family asserting, among other things, a statutory bad faith claim for unreasonable delay or denial of benefits under C.R.S. §§ 24 10-3-1115 and -1116. The trial court ruled that the deviation in the records issued by American Family’s agent and those produced by its own underwriting department created an ambiguity in the insurance policy as to the identity of the named insured, and instructed the jury that an ambiguous contract must be construed against the insurer. The jury found that American Family had delayed or denied payment without a reasonable basis for its action. The Court of Appeals affirmed, finding that the lienholder statements created an ambiguity.

The Supreme Court held that because the insurance contract unambiguously named Hansen’s mother and stepfather as the insureds at the time of the accident, the trial court and Court of Appeals erred in relying on extrinsic evidence to find an ambiguity in the insurance contract. Accordingly, American Family’s denial of Hansen’s claim in reliance on the unambiguous insurance contract was reasonable, and American Family cannot be held liable under C.R.S. §§ 10-3-1115 and -1116 for statutory bad faith. The judgment was reversed.

Summary provided courtesy of The Colorado Lawyer.

Colorado Supreme Court: Notice-Prejudice Rule Does Not Apply to No-Voluntary-Payment Provisions

The Colorado Supreme Court issued its opinion in Travelers Property Casualty Co. of America v. Stresscon Corp. on Monday, April 25, 2016.

Insurance—Enforceability of “No Voluntary Payments” Provisions—Scope of the Notice-Prejudice Rule.

Travelers Property Casualty Company of America (Travelers) petitioned for review of the Court of Appeals’ judgment affirming the district court’s denial of its motion for directed verdict in a lawsuit brought by its insured, Stresscon Corporation (Stresscon). The Court of Appeals rejected Travelers’ contention that the “no voluntary payments” clause of their insurance contract relieved it of any obligation to indemnify Stresscon for payments Stresscon had made without its consent. The Court of Appeals found that the Supreme Court’s opinion in Friedland v. Travelers Indemnity Co., 105 P.3d 639 (Colo. 2005), permitting the insured in that case an opportunity to demonstrate a lack of prejudice from its failure to comply with a notice requirement of its insurance contract, had effectively overruled the Court’s prior “no voluntary payments” jurisprudence to the contrary and given Stresscon a similar opportunity.

The Supreme Court reversed the Court of Appeals’ judgment, holding that its adoption of a notice-prejudice rule in Friedland did not overrule any existing “no voluntary payments” jurisprudence in this jurisdiction, and declining to extend its notice-prejudice reasoning in Friedland to Stresscon’s voluntary payments, made in the face of the “no voluntary payments” clause of its insurance contract with Travelers. Because application of the notice-prejudice rule was the sole basis for the district court’s denial of Travelers’ motion for directed verdict, and because it was undisputed that Stresscon voluntarily settled and paid the third-party claim for which it sought reimbursement, the Court remanded the case with directions that the jury verdict be vacated and that a verdict instead be directed in favor of Travelers.

Summary provided courtesy of The Colorado Lawyer.

Tenth Circuit: Insurer Who Failed to Reserve Rights Responsible for Default Judgment

The Tenth Circuit Court of Appeals issued its opinion in Cornhusker Casualty Co. v. Skaj on Monday, May 18, 2015.

Vincent Rosty, an employee of R&R Roofing, Inc., drove a company dump truck to the home of Shari Skaj, his ex, to drop off roofing supplies and see if his kids were there. At some point after Vincent stopped in an alley behind the Skaj residence, the truck was accidentally knocked into second gear and rolled forward, pinning Ms. Skaj against a parked motor home and causing serious injuries. A lab test performed later in the day confirmed the presence of marijuana and methamphetamine in Vincent’s bloodstream.

Cornhusker Casualty provided commercial liability insurance to R&R at the time of the accident, and R&R and Randy Rosty (0wner of R&R, along with Steven Rosty) were the named insureds. Within days of the accident, Cornhusker hired AmeriClaim adjuster Charles Brando to investigate the incident. Brando’s report noted that Vincent had driven off-route on personal business despite an unwritten company policy prohibiting personal use of company vehicles.

After receiving notice of Ms. Skaj’s forthcoming claim, Cornhusker wrote to R&R, Steven Rosty, and Vincent to notify them of potential excess liability exposure and to inform them of the right to retain independent counsel. Cornhusker specifically stated it would continue to defend the claim. The Skajs filed suit in Wyoming county court, asserting several claims based on negligence and requesting punitive damages since Vincent was intoxicated at the time of the accident. Cornhusker’s counsel filed an answer to the complaint as to Steven and R&R only, asserting she did not represent Vincent. Cornhusker determined Vincent was not entitled to a defense. However, Cornhusker did not attempt to inform Vincent it was no longer defending him. Default issued against Vincent, the non-defaulting defendants were dismissed, and eventually the Wyoming trial court set a default judgment hearing. Cornhusker hired separate representation for Vincent for that hearing, who opposed the default judgment, and after the hearing default entered against Vincent for $897,344.24.

One week after the default judgment hearing, Cornhusker sent Vincent a letter purporting to deny coverage for the first time. In support of its coverage denial, Cornhusker stated Vincent was not a permissive user of the truck, was not acting within the course and scope of his employment with R&R, was intoxicated, and had misappropriated roofing materials from R&R, also stating he had not cooperated with Cornhusker during the Skajs’ lawsuit. Shortly after, Cornhusker sent another letter to Vincent, characterizing its representation of him at the default judgment hearing as “pursuant to a reservation of rights” and for the limited purpose of having the default set aside. Meanwhile, Vincent’s counsel appealed the default, and eventually the Wyoming Supreme Court affirmed the judgment except insofar as it awarded punitive damages. Cornhusker refused to pay, maintaining Vincent was not covered by the policy.

Cornhusker filed suit in the U.S. District Court for the District of Wyoming, seeking a declaration that the policy did not provide coverage for Vincent because he was not an insured and had not cooperated in the investigation. Vincent counterclaimed against Cornhusker, asserting theories of negligence, intentional infliction of emotional distress, promissory estoppel, and breach of contract. The Skajs also counterclaimed, seeking a declaration that Cornhusker was required to pay the judgment in the underlying action and seeking attorney fees based on Cornhusker’s refusal to pay. Vincent and the Skajs jointly counterclaimed that Cornhusker should be estopped from asserting the defense of noncoverage because of its unconditional defense of Vincent in the underlying action. All parties filed motions for summary judgment. After a hearing, the district court declared Cornhusker was estopped from denying coverage to Vincent because it represented it would provide a defense, never reserved its rights, and did not advise Vincent of its decision to deny coverage until more than 16 months after entry of default. The court granted summary judgment to Cornhusker on Vincent’s various claims and denied the Skajs’ motion for attorney fees. The district court ordered Cornhusker to pay the full amount of the default judgment. Cornhusker appealed the district court’s finding of estoppel. The Skajs cross-appealed the court’s denial of their attorney fees. Vincent also appealed, seeking reversal on his bad faith and punitive damages claims.

After quickly dismissing Cornhusker’s standing argument, the Tenth Circuit evaluated the estoppel claim. Prior circuit precedent established estoppel where an insurer defended a claim without reserving its rights. Although the question had not been reached in Wyoming, the Tenth Circuit construed Wyoming law and determined the insurer must accept the consequences of its decision to assume full control of the litigation without a reservation of rights, because the insured was induced to relinquish control of the defense. In this case, Cornhusker never explicitly reserved its rights as to Vincent. Even Vincent’s counsel “found it odd” that Cornhusker would take the approach of providing a full defense to Vincent without a reservation of rights, but the Tenth Circuit found that since that was the path Cornhusker chose, it should face the consequences of its action and pay the judgment. The Tenth Circuit found no error in the district court’s order for Cornhusker to pay the default judgment.

Next, the Tenth Circuit considered Vincent’s bad faith and punitive damages claims. Vincent characterized the bad faith as Cornhusker’s retention of counsel who refused to defend him and allowed entry of default against him. However, the Tenth Circuit found neither substantive nor procedural bad faith in Cornhusker’s conduct. Because Cornhusker had a reasonable basis for its denial, there was no substantive bad faith. And, because Cornhusker did not fail to investigate the claim, there was no procedural bad faith, and certainly not enough to satisfy Wyoming’s “high bar” for conduct constituting procedural bad faith. The Tenth Circuit similarly disposed of the punitive damages claim since it was based on the same conduct as the bad faith claim. Finding that punitive damages are only to be awarded for conduct so egregious it is nearly criminal, the Tenth Circuit could discern no such conduct here.

The Tenth Circuit then turned to the Skajs’ counterclaim for attorney fees. The district court had determined that Wyoming’s “unreasonable or without cause” standard for refusal to pay losses covered by insurance was so similar to the standard for bad faith that the same analysis applied. The Tenth Circuit found no error in the district court’s finding and affirmed its denial of attorney fees. Although the Skajs sought to introduce supplemental material to the Tenth Circuit to bolster their attorney fee claim, the Tenth Circuit denied the motion, finding the Skajs could have introduced the evidence in district court but failed to do so. Likewise, Cornhusker’s motion to seal the Skajs’ supplemental index was denied as moot.

The Tenth Circuit affirmed the decision of the district court in full, denied the Skajs’ motion to file a supplemental index, and denied as moot Cornhusker’s motion to seal the supplemental index.

Colorado Supreme Court: Trial Court Abused Discretion by Allowing Change of Venue

The Colorado Supreme Court issued its opinion in In re Hagan v. Farmers Insurance Exchange; In re Ewald v. Farmers Insurance Exchange; In re Mayfield v. Farmers Insurance Exchange on Monday, January 26, 2015.

Change of Venue.

In these original proceedings under CAR 21, plaintiffs sought extraordinary relief from the trial courts’ orders granting a change of venue. The Supreme Court issued rules to show cause why those orders should not be vacated and venue transferred back to Boulder County District Court and consolidates its ruling here.

The Court held that the trial courts abused their discretion when they granted a change of venue in each of these cases. First, Boulder County District Court is a proper venue for all three cases; under CRCP 98(c)(1), plaintiffs were allowed to file their complaints in the county of their choice because defendant is a nonresident. Second, the trial courts granted the motions without the requisite evidentiary support. The affidavits that defendant submitted improperly focus on convenience to plaintiffs and do not satisfy the standard set forth in Sampson v. District Court, 197 Colo. 158, 160, 590 P.2d 958, 959 (1979). Consequently, the Court made the rules absolute and directed the transferee courts to return the cases to Boulder County District Court.

Summary and full case available here, courtesy of The Colorado Lawyer.

Tenth Circuit: Privilege Cannot Be Used as Both Sword and Shield

The Tenth Circuit Court of Appeals issued its opinion in Seneca Insurance Co., Inc. v. Western Claims, Inc. on Monday, December 22, 2014.

Seneca hired Western Claims to investigate an insured’s claim for wind and hail damage to buildings. Western’s adjuster investigated and found some damage but determined the buildings had not suffered hail damage to the roof. Later, the insured asked Seneca to reopen its claim based on an estimate from its roofing contractor that it had suffered hail damage to the roof. Eventually, the insured sued Seneca, Western, and the adjuster in Oklahoma state court, claiming all three had mishandled its claims, and sued Seneca for breach of insurance contract, bad faith, and fraud.

During the litigation, Seneca’s claims examiner prepared a large loss report and distributed it to several Seneca executives. Seneca also sought advice from two attorneys in separate firms regarding the lawsuit. The attorneys advised Seneca regarding its potential bad faith liability and recommended settling the lawsuit for $1 million and then suing Western and the adjuster to recover. Seneca followed this advice. In discovery, Seneca disclosed that it had settled the litigation “on advice of counsel.” Western Claims filed a motion to compel documents Seneca relied on in settling the litigation. Seneca objected to the motion and again at trial, claiming the attorney-client privilege and work product doctrine, but the district court found Seneca had put the documents in issue. At trial, several Seneca executives testified that they agreed upon the $1 million settlement “on advice of counsel.”

At the close of Seneca’s case-in-chief, the district court granted Western Claims’s motion for judgment as a matter of law regarding Seneca’s equitable indemnity claim, but allowed the negligence claim to be submitted to the jury, where Western Claims ultimately prevailed. Seneca appealed the district court’s decision to allow Western Claims to discover the correspondence from its attorneys. Western Claims cross-appealed the district court’s denial of its motion for judgment as a matter of law as to the negligence claim.

Seneca argued the district court erred in concluding it waived its right to claim attorney-client privilege and work product protection regarding the correspondence from its attorneys. The Tenth Circuit evaluated whether some “affirmative act” by Seneca waived the privilege. It found that, when Seneca claimed it relied on “advice of counsel” for the settlement amount, it put that advice at issue and thus waived privilege. Seneca claimed that the information was available in other sources, but the Tenth Circuit disagreed, finding that Seneca expressly relied on “advice of counsel” and could not use the advice both as a sword and a shield.

The district court’s judgment was affirmed.

Colorado Court of Appeals: Breach of Insurance Contract Claims Properly Denied When Brought Against Third-Party Administrators and Not Insurance Company

The Colorado Court of Appeals issued its opinion in Riccatone v. Colorado Choice Health Plans on Thursday, September 12, 2013.

Bad-Faith Breach of Insurance Contract—Insurer—Motion to Amend.

Plaintiffs Kirsten K. Riccatone, Brian Riccatone, and Ashlee D. Duran appealed from the summary judgments entered by the district court in favor of defendants Colorado Choice Health Plans, doing business as San Luis Valley Health Maintenance Organization (Choice); Gallagher Benefit Services, Inc. (GBS); and CNIC Health Solutions, Inc. (CNIC). The judgment was affirmed.

Plaintiffs were plan participants under the San Luis Valley Combined Educators Health Plan (Plan). The Plan was an employer self-funded healthcare plan. Choice and CNIC were, respectively, the current and former third-party administrators for the Plan. GBS was a broker and advisor for the Plan. Plaintiffs brought claims based on the denial of benefits to Duran based on a provision in the Plan excluding from coverage injuries resulting from the illegal use of alcohol.

Plaintiffs contended that the district court erred in granting summary judgment to defendants on plaintiffs’ common law bad-faith breach of insurance contract and unreasonable denial of insurance benefits claims. The district court properly granted summary judgment in favor of CNIC, Choice, and GBS on plaintiffs’ common law bad-faith breach of insurance contract claims, because these defendants were not the insurer; did not have a financial incentive to deny plaintiff’s claims or coerce a reduced settlement; and, therefore, did not owe a duty of good faith and fair dealing to plaintiffs. Additionally, the district court properly granted summary judgment in favor of GBS and Choice on plaintiffs’ claim for unreasonable denial of insurance benefits under CRS § 10-3-1116(1), because neither GBS nor Choice was a proper defendant under the statute. They were not engaged in the business of insurance, which includes only those individuals or entities against whom a common law claim of bad-faith breach of insurance contract would exist.

Plaintiffs also contended that the district court abused its discretion in denying their motion to amend the complaint to assert new claims against defendants for aiding or abetting a tortious act. The district court did not abuse its discretion in denying plaintiffs’ motion to amend based on plaintiffs’ undue delay and their repeated failure to cure deficiencies in their pleadings through prior amendments.

Summary and full case available here.

Tenth Circuit: Burden for Allocating Judgment Between Covered and Uncovered Claims Is On Insurer Who Has a Duty to Defend

The Tenth Circuit Court of Appeals published its opinion in Automax Hyundai South v. Zurich American Insurance on Wednesday, June 26, 2013.

Automax Hyundai South, a car dealership in Oklahoma City, Oklahoma, filed suit against its insurer, Zurich American Insurance Co., for Zurich’s refusal to defend Automax in a lawsuit. The underlying lawsuit involved two aggrieved customers who brought claims against Automax relating to a car purchase they had made. The customers won a judgment in Oklahoma state court. The district court ruled that Zurich had no duty to defend or indemnify Automax in the underlying lawsuit, and thus its claims failed.

Automax’s policy had an occurrence provision covering accidents, not intentional conduct, and a statutory errors and omissions provision. The Tenth Circuit, applying Oklahoma law, held that Zurich had a duty to defend Automax because the underlying facts of the case, not the allegations in the complaint, are dispositive of the duty to defend. The facts indicated Automax may have been negligent in failing to detect prior damage to the car, which would take the acts out of the uncovered intentional realm. Additionally, because at least some of the alleged conduct was covered under the policy, Zurich had a duty to defend all the claims.

Zurich argued that it had no duty to indemnify Automax for the settlement it ultimately paid the customers in lieu of appealing the jury verdict because it was based on intentional conduct. The jury “found Automax liable under three different theories of liability—negligence, fraud/deceit, and truth-in-lending act violations—but neither apportioned the $300,000 damages award among the three theories nor specified the precise conduct to which the finding of intentionality and malice applied.” The Tenth Circuit found that it was possible covered conduct formed part of the basis for the verdict. The burden for allocating the judgment between covered and uncovered claims is on the insurer who has a duty to defend. The court remanded to give Zurich an opportunity to prove it can apportion the verdict between covered and uncovered conduct. The court held that if Zurich could not meet its burden, it would have to pay Automax the entire amount.

The court also reversed summary judgment for Zurich on Automax’s bad faith claim because Zurich had a duty to defend and may not have had a reasonable basis for denying coverage.