June 27, 2017

Colorado Court of Appeals: District Court Erred in Concluding Injured Worker Not Entitled to UIM Benefits from Personal Insurer

The Colorado Court of Appeals issued its opinion in American Family Mutual Insurance Co. v. Ashour on Thursday, May 18, 2017.

Personal InjuriesWorkers Compensation ActPersonal Automobile Insurance PolicyUninsured Motorist Benefits—Underinsured Motorist Benefits.

Ashour was an employee and co-owner of Nubilt Restoration & Construction (Nubilt). While employed with Nubilt, Ashour was severely injured when he was pinned by a 30-foot truck to a nearby tractor-trailer. The accident was caused by the negligence of his co-employee Peake, who failed to set the airbrake on the truck that rolled backward and pinned Ashour to the other vehicle. After the accident, Ashour submitted a claim to Nubilt’s workers’ compensation carrier and subsequently received benefits. He also submitted a claim to Nubilt’s corporate liability insurance provider and received a settlement for that claim based on a policy rider that allowed for coverage of workplace injuries. Ashour then made a claim under his personal automobile insurance policy with American Family Mutual Insurance Company (AFI) for underinsured (UIM) benefits to recover the remainder of his alleged damages. AFI then filed an action for declaratory relief as to whether Ashour was owed UIM coverage when the policy limited UIM benefits to situations where the insured was “legally entitled to recover” from the owner or operator of an uninsured or underinsured motor vehicle. The district court denied Ashour’s motion for summary judgment and granted AFI’s motion for summary judgment.

On appeal, Ashour contended that the district court erred by ruling, as a matter of law, that his claim for UIM coverage under his automobile insurance policy with AFI was precluded because he was not legally entitled to sue his employer or co-employee in tort for his injuries based on their immunity under the Workers’ Compensation Act of Colorado (the Act). Nubilt and its workers’ compensation insurance carrier are immune from suit by Ashour for his injuries sustained in the course and scope of his employment. By extension, co-employees are also immune from suit for injuries to a fellow employee arising out of the scope of employment. However, this exclusive remedy is limited to suits by an injured employee against his employer or co-employee; an injured employee may receive workers’ compensation benefits and bring suit against a third-party tortfeasor. Here, AFI’s uninsured motorist/underinsured motorist (UM/UIM) policy provides coverage where the tortfeasor is underinsured. Underinsured tortfeasors are those who are covered by insurance at the time of the accident. Thus, Nubilt and Peake are effectively underinsured in that Ashour received benefits up to Nubilt’s workers’ compensation insurance limits but still has additional damages from his workplace injury. It is the exhaustion of Nubilt’s and Peake’s limits of liability coverage (i.e., workers’ compensation insurance) that triggers AFI’s obligation to pay UM/UIM benefits. Therefore, Ashour’s claim for UIM benefits under his policy with AFI is not barred by the exclusivity provisions of the Act or by the “legally entitled to recover” language of the policy.

The judgment was reversed and the case was remanded with directions to enter summary judgment in favor of Ashour, declaring, as a matter of law, that AFI must provide coverage of UM/UIM benefits to Ashour upon his proof that Peake was at fault for causing his injuries and of the extent of his damages in excess of the coverage offered him under the Act.

Summary provided courtesy of The 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: Tractor is Motor Vehicle for Underinsured Motorist Coverage Purposes

The Colorado Court of Appeals issued its opinion in Smith v. State Farm Mutual Automobile Insurance Co. on Thursday, January 12, 2017.

Insurance—Covered Motor Vehicle—Underinsured Motorist Provision—Farm Tractor.

Bunker was driving a farm tractor when he collided with Smith’s truck. The hay spears attached to the tractor pierced the truck and impaled Smith, leaving him severely injured. Bunker pleaded guilty to careless driving, and Smith settled his claim against Bunker for Bunker’s liability policy limits. Because this settlement did not fully compensate Smith for his injuries, he filed a claim for underinsured motorist benefits (UIM) with State Farm Mutual Automobile Insurance Co. (State Farm). State Farm denied coverage on the basis that a farm tractor is not a motor vehicle. Smith sued and the district court dismissed the complaint, finding that the tractor was not a covered motor vehicle for purposes of the UIM coverage policy.

On appeal, Smith contended that his policy’s property damage coverage section definition of “uninsured motor vehicle” is included in the UIM coverage provision. The Colorado Court of Appeals declined to extend the “uninsured motor vehicle” definition found only in the property damage coverage provision beyond that provision.

Smith next contended that the plain and ordinary meaning of “motor vehicle” includes the tractor. The court determined that the plain and ordinary meaning is an automotive vehicle not operated on rails and one with rubber tires for use on highways. Applying this definition, the court found that the tractor had wheels and its own motor, was not operated on rails, and was designed for use on streets and highways. Therefore, it was a covered motor vehicle under Smith’s UIM coverage provision.

The judgment was reversed and the case was remanded.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Terms of Settlement Offer were Valid and Enforceable When Accepted

The Colorado Court of Appeals issued its opinion in Kovac v. Farmers Insurance Exchange on Thursday, January 12, 2017.

Personal Injury—Underinsured Motorist—Statute of Limitations—Summary Judgment.

Kovac was seriously injured in a car accident with Filipelli. It was undisputed that Filipelli was at fault. Kovac’s medical expenses exceeded $1.4 million. Filipelli was covered by Shelter Insurance Company (Shelter) with a liability limit of $100,000. Kovac was insured under two different automobile policies with Farmers Insurance Exchange (Farmers).

Kovac settled with Shelter for its policy limits. Later, Farmers offered to settle Kovac’s remaining claims for $80,000, but the parties could not reach a settlement. Kovac sued Farmers on April 3, 2015 for recovery of UIM benefits, tortious bad faith breach of contract, and unreasonable delay and denial of insurance benefits. Farmers moved for summary judgment on the grounds that the Shelter settlement check was tendered to Kovac’s attorney on April 2, 2013 and the statute of limitations therefore ran on April 2, 2015. The district court agreed and dismissed the suit.

On appeal, Kovac argued that although her attorney received the check and settlement offer on April 2, it was not accepted until April 5 when the release was signed and the check endorsed. Therefore, the statute of limitations ran on April 5, 2015 and her complaint was timely filed on April 3, 2015. C.R.S. § 13-80-107.5(b) provides that the statute of limitations runs two years from the date when the insured “received payment of the settlement” on the underlying bodily injury claim. The court of appeals determined that Kovac released her claims against Filipelli on April 5, 2013.  Therefore the statute of limitations had not run when she filed her complaint against Farmers.

The summary judgment was reversed and the case was remanded.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Attorney’s Prelitigation Statements Must Be Made in Good Faith to Qualify as Privileged

The Colorado Court of Appeals issued its opinion in Begley v. Ireson on Thursday, January 12, 2017.

Belinda Begley and Robert Hirsch, and their joint revocable trust (collectively, plaintiffs), purchased a property in Denver with the intent of demolishing the existing house and building a new house. Their architect’s plans were approved by the City & County of Denver, and plaintiffs contracted with a builder to begin demolition in anticipation of construction. The builder demolished the old house and began the shoring work for the new house. The neighbors, Ireson and Hoeckele, along with their attorney, Gibbs (collectively, defendants), made several threatening statements to the builder, which caused him to cease work and breach his contract with plaintiffs.

Plaintiffs filed a complaint against defendants, alleging intentional interference with a contract and intentional interference with prospective contractual relations. Several days later, defendants filed suit against plaintiffs, and moved to dismiss plaintiffs’ complaint under C.R.C.P. 12(b)(5) for failure to state a claim, arguing that their allegedly tortious statements were made in anticipation of litigation and were therefore protected. The district court apparently took judicial notice of defendants’ suit and granted their C.R.C.P. 12(b)(5) motion. Plaintiffs appealed.

The Colorado Court of Appeals first noted that motions to dismiss under C.R.C.P. 12(b)(5) are viewed with disfavor. The district court had ruled that the plaintiffs’ complaint failed to state a claim because there was no allegation that the statements by Hoeckele, Ireson, and Gibbs caused the builder to breach his contract. The court of appeals found this was error. The complaint alleged with specificity several incidents in which Ireson, Hoeckele, and Gibbs interfered with the construction contract, and the court held that nothing more was required to survive the motion to dismiss. The court reversed the district court’s grant of defendants’ motion.

The district court next ruled that because Gibbs’ statements and communications to the builder were made while he was representing Ireson and Hoeckele and were “in anticipation and in furtherance of litigation,” they were absolutely privileged against the torts that plaintiffs alleged. The court of appeals again found that this ruling was in error. The court analyzed several state appellate court decisions, as well as section 586 of the Restatement (Second) of Torts, and determined that prelitigation statements must be made in good faith to be privileged. Because the district court made no finding as to whether Gibbs’ statements were made in good faith, the court of appeals reversed and remanded.

The court of appeals reversed the district court’s rulings and remanded for further proceedings.

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.

Colorado Court of Appeals: Property Owner Is Not Liable Under PLA for Injuries Occurring on Sidewalk

The Colorado Court of Appeals issued its opinion in Andrade v. Johnson on Thursday, October 6, 2016.

Personal Injury—Summary Judgment—Premises Liability Statute—Negligence.

Andrade slipped and fell on the damaged public sidewalk adjacent to Johnson’s house and fractured her leg. Andrade filed a complaint against Johnson asserting premises liability and common law negligence claims. The district court granted Johnson’s motion for summary judgment on both claims.

On appeal, based on concessions in her opening brief, the court of appeals determined that Andrade did not contest entry of the summary judgment on the premises liability claim. Based on the undisputed fact that Andrade fell on a public sidewalk, the court concluded as a matter of law that Johnson was not a “landowner” for purposes of the premises liability statute, C.R.S. § 13-21-115 (the Act). Because Andrade’s injury did not occur on Johnson’s property, she had no claim under the Act, and the district court did not err in entering summary judgment on this claim.

Andrade also argued that the district court erred in entering summary judgment on the negligence claim, alleging Johnson had a duty to notify the city engineer about the damaged sidewalk and became liable for Andrade’s injury as a result of her failure to notify. The court considered whether the “no duty” rule was applicable and concluded that it was not because Colorado Springs City Code § 3.4.103(D) expressly provides for civil liability under the circumstances of this case. The court held that (1) the plain language of § 3.4.103(B) unambiguously imposes a duty on owners and occupants of real property to notify the city engineer about any damage to the public sidewalk abutting or adjacent to their property, and (2) this section expressly imposes liability on such owners or occupants when their failure to notify is the proximate cause of a third party’s injury. Because disputed issues of fact remain as to whether the public sidewalk was damaged and whether Johnson’s failure to report it was a proximate cause of Andrade’s injuries, the district court erred by entering summary judgment on this claim.

The summary judgment on the premises liability claim was affirmed. The summary judgment on the negligence claim was reversed and the case was remanded to the district court for further proceedings.

Summary provided courtesy of The Colorado Lawyer.

Tenth Circuit: Attorney Fee Award Appropriate Where Oil and Gas Well Sustained Physical Damage

The Tenth Circuit Court of Appeals issued its opinion in Sundance Energy Oklahoma, LLC v. Dan D. Drilling Corp. on Friday, September 2, 2016.

Sundance contracted with Dan D. to drill several oil and gas wells, and used a standard International Association of Drilling Contractors (IADC) form for each individual well. Dan D. was unable to drill several of the wells because it could not acquire permits, so Sundance asked Dan D. to drill a different group of wells instead, including the Rother well, under the supervision of Tres Management. Although Dan D. did not have a contract, it began drilling the Rother well in December 2012 under the supervision of a Tres company man. Days later, Dan D.’s drill pipe became stuck in the hole. After several failed attempts to remove the pipe, the company man instructed the Dan D. employees to stop pulling on the pipe. A driller ignored the instructions and continued pulling on the pipe, causing the drilling line to break and throw debris, killing the driller. A medical examiner later determined the driller had substantial amounts of methamphetamine in his blood at the time of his death.

A subsequent OSHA investigation suspended all drilling at the Rother well, concluding that the drilling failure resulted from progressive fatigue on the drill line. OSHA issued a citation to Dan D. for failing to inspect and properly maintain the drill line. After the OSHA investigation concluded, Sundance attempted to fish out the stuck drill pipe, but the wellbore had deteriorated and the well was ultimately plugged and abandoned as a total loss.

Sundance sued Dan D. for damages, asserting that Dan D.’s negligence, gross negligence, and breach of implied contract to drill the well in a workmanlike manner resulted in the loss of the hole. Dan D. filed several motions in limine prior to trial, including objecting to the admission of the OSHA narratives and the medical examiner’s toxicology report. The district court denied the motion to suppress the toxicology report and partially denied the motion to suppress the OSHA reports, allowing only portions of the documents to be used. At trial, Sundance’s expert witness testified that Dan D.’s failure to log and track the ton miles of the drill line was “unheard of” in the industry, and that Dan D. should have slipped and cut the drill line to prevent the accident. Sundance relied on Dan D.’s gross negligence caused the line failure and the ultimate loss of the hole. Dan D. disagreed, arguing the fault should lie with Tres and the company man. Dan D. also argued that the IADC contract’s exculpatory provisions state that Sundance was liable for any loss or damage to the hole. Dan D. also asked the district court to instruct the jury that it should impute negligence to Tres, but the district court declined to do so. The district court instead instructed the jury that if it did not find Dan D. was grossly negligent, it should not consider whether an implied contract between the parties incorporated the IADC contract’s exculpatory provisions.

The jury returned a verdict for Sundance, finding Dan D. was grossly negligent and breached an implied contract to drill the well in a workmanlike manner. The jury attributed 75% of the loss to Dan D.’s negligence and 25% to Tres’ negligence, awarding Sundance $1.2 million in damages. Dan D. moved for a new trial under F.R.C.P. 59(a). The district court denied the motion and Dan D. appealed that order. Sundance then filed a motion for attorney fees, which the district court granted. Dan D. also appealed the attorney fee award. The appeals were consolidated.

Dan D. first argued the district court erred in instructing the jury that it need not consider whether the implied contract included the allocation of risk provisions if it found Dan D. grossly negligent, and refusing to impute Tres’ negligence to Sundance. The Tenth Circuit analyzed Dan D.’s claims for abuse of discretion and found none. The district court based its instruction regarding gross negligence on an Oklahoma Supreme Court case where a federal district court certified a question to the Oklahoma Supreme Court regarding whether an exculpatory provision was valid and enforceable. The Oklahoma Supreme Court ruled it was not enforceable in cases involving, among other things, gross negligence. The Tenth Circuit approved of the district court’s reliance on this case and found no abuse of discretion.

Dan D. also argued the district court should have granted a new trial based on its refusal to give Dan D.’s proposed instructions on whether Sundance owed Dan D. a non-delegable duty. The Tenth Circuit found that even if it agreed with Dan D. that the district court erred by not giving the proposed instruction, the error did not prejudice Dan D. because the jury’s verdict for Sundance on the breach of implied contract claim independently supported the damages award. Accordingly, any imputation of negligence would not have affected the breach of contract award.

The Tenth Circuit also found no error in the district court’s admission of the toxicology report or OSHA narratives. Because Dan D. did not object to the admission of any other evidence, and other evidence showed Dan D.’s failures, Dan D. could not show prejudice by the admission of the toxicology report or OSHA narratives.

Finally, the Tenth Circuit addressed Dan D.’s challenge to the attorney fee award. The Tenth Circuit evaluated Okla. Stat. tit. 12, § 940(A), which provides for attorney fees to the prevailing party in any action related to the negligent or willful injury to property, and found the statute applicable in the instant action. The Tenth Circuit noted the physical deterioration of the Rother well during the 12-day OSHA investigation was precisely the type of injury contemplated under § 940(A). Because Sundance prevailed in the action regarding physical injury to a well, the attorney fee award was appropriate.

The Tenth Circuit affirmed the district court.

Colorado Supreme Court: Economic Loss Rule Does Not Bar Tort Claims Arising Before Execution of Contract

The Colorado Supreme Court issued its opinion in Van Rees v. Unleaded Software, Inc. on Monday, June 27, 2016.

Economic Loss Doctrine—Conversion and Civil Theft—Public Impact or Interest—Private or Internal Transactions.

After Unleaded Software, Inc. failed to deliver contracted-for websites and services, Van Rees brought suit, alleging various tort theories, civil theft, three breach of contract claims, and a violation of the Colorado Consumer Protection Act (CCPA). The trial court dismissed all but the contract claims, and the court of appeals affirmed, holding that the economic loss rule barred the tort and civil theft claims and that Van Rees failed to allege a significant public impact under the CCPA.

The supreme court affirmed in part and reversed in part. The economic loss rule applies only if there is no independent tort duty. Here, where Van Rees alleged Unleaded induced him into entering a contractual relationship when it knew it would not be able to perform the promised services, there is an independent tort duty, and the court therefore reversed as to Van Rees’s tort claims. The court did not reach the question of the economic loss rule as it relates to civil theft and instead affirmed the dismissal of that claim because Van Rees failed to adequately allege the knowing deprivation of a thing of value. Finally, the court affirmed the dismissal of the CCPA claim for failure to allege a significant public impact.

Summary provided courtesy of The Colorado Lawyer.

Tenth Circuit: Class Certification Improper Where Parties Fail to Demonstrate Commonality

The Tenth Circuit Court of Appeals issued its opinion in Soseeah v. Sentry Insurance on Friday, December 18, 2015.

Mr. Soseeah, after being injured in a motor vehicle accident, made a claim for uninsured and underinsured motorist (“UM/UIM”) benefits under two policies of automobile insurance issued by Sentry Insurance. Additionally, Mr. Soseeah demanded that Sentry reform his two policies to provide UM/UIM coverage in accord with two recent New Mexico Supreme Court cases. According to the complaint, Mrs. Soseeah never executed a valid waiver of UM/UIM coverage under the two policies, or, alternatively, her waiver was legally insufficient under the New Mexico Supreme Court precedent. However, Sentry refused to reform the policies and rejected Mr. Soseeah’s claim for UM/UIM benefits.

Plaintiffs Delbert Soseeah, Maxine Soseeah and John Borrego then filed a class action against defendants Sentry Insurance, and a number of its related entities, claiming, in part, that Sentry failed to timely and properly notify them and other Sentry automobile insurance policyholders of the impact of two New Mexico Supreme Court decisions regarding the availability of UM/UIM coverage under their respective policies. In the first case, Progressive Northwestern Insurance Co. v. Weed Warrior Services, the New Mexico Supreme Court held that “the insurer may not exclude the maximum possible level of UM/UIM coverage in an auto liability policy unless it has offered it to the insured and the insured has exercised the right to reject the coverage through some positive act.” In the second case, Jordan v. Allstate Insurance Co., the New Mexico Supreme Court imposed upon insurers retroactive technical requirements for valid offers and rejections of UM/UIM coverage.

The proposed plaintiff class filed a number of amended complaints that contained various claims against Sentry, three of which were eventually addresses by the Tenth Circuit Court of Appeals. The complaint alleges Sentry’s failure to notify its New Mexico policyholders that UM/UIM coverage limits were reformed by Weed Warrior and Jordan, coupled with Sentry’s refusal to reform Mr. Soseeah’s policies and rejection of his claim for UM/UIM benefits, amounted to (1) a violation of New Mexico’s Unfair Practices Act (UPA), (2) a contractual breach of the insurance policies, and (3) a breach of the implied covenant of good faith and fair dealing. Further, the complain alleges three form letters sent by Sentry to its policyholders in an attempt to comply with the notice requirements of Weed Warrior and Jordan were in fact “misleading an inaccurate” in light of the two decisions. Lastly, the complaint defined a proposed class of Sentry policyholders, alleging all such insureds were entitled to policy reformation and proper notice.

The district court granted plaintiffs’ motion for class certification, thereby establishing a class of all insureds under policies issued in New Mexico by Sentry from May 20, 2004 to April 1, 2011 in which UM/UIM coverage was purportedly rejected, including as subclasses (1) insureds who received the first and second form letter, and (2) insureds who received the third form letter. Sentry subsequently sought and was granted permission to appeal the district court’s class certification ruling to the Tenth Circuit Court of Appeals.

First, the Tenth Circuit held the district court abused its discretion in concluding that the general class it certified satisfied Rule 23(a)(2)’s commonality requirement, which requires plaintiff to demonstrate that the class members have suffered the same injury that is capable of class wide resolution. In rejecting the claim of the plaintiff class under the UPA, the court found the UPA did not impose any duty on Sentry with respect to notifying existing policyholders of the impact of Weed Warrior and Jordan. Plaintiffs’ breach of contract claim cannot give rise to the common injury required for class certification, the court held, because plaintiffs have not identified a single contractual provision in any of the policies at issue, let alone one that is contained in all of the policies at issue, that would have imposed a duty on Sentry to inform the certified class of the impact of Weed Warrior and Jordan. Lastly, considering plaintiff’s bad faith claim, the court again concluded the class was unable to satisfy the common injury requirement necessary for class certification. Even assuming Sentry acted in bad faith with respect to the class by failing to inform them of the impact of Weed Warrior and Jordan, the Tenth Circuit failed to see how the purported lack of notice and information could have injured a policyholder in the absence of a viable claim against Sentry for UM/UIM benefits, considering a large percentage of the certified class members did not have any such claim at all. Therefore, the Tenth Circuit concluded the district court abused its discretion in certifying the general class.

Second, the Tenth Circuit remanded to the district court for further consideration of the certification of the two subclasses, as the Tenth Circuit did not have enough information to determine whether the district court abused its discretion is certifying said subclasses.

Max Montag is a 2016 J.D. Candidate at the University of Denver Sturm College of Law.

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.

HB 16-1310: Increasing Potential Liability of Oil and Gas Operators Beyond Interference with Surface Use

On March 2, 2016, Rep. Joseph Salazar and Sen. Morgan Carroll introduced HB 16-1310Concerning Liability for the Conduct of Oil and Gas Operations. The bill was introduced in the House Health, Insurance, & Environment Committee, where it was referred, unamended, to the House Committee of the Whole. The bill passed Second Reading with amendments and Third Reading with no amendments. In the Senate, the bill was assigned to the Agriculture, Natural Resources, & Energy Committee.

Under current law governing relations between surface landowners and oil and gas operators, to prevail on a claim a surface owner plaintiff must present evidence that the operator’s use of the surface land materially interfered with the surface owner’s use of the surface of the land. This bill increases the potential liability of operators beyond interference with the owner’s use of the surface by allowing a plaintiff to present evidence that the oil and gas operations caused bodily injury to the surface owner or any person residing on the property of the surface owner, or that the operations damaged the surface owner’s property.

The bill also holds oil and gas operators strictly liable if the operations, including a hydraulic fracturing treatment or reinjection operation, cause an earthquake that damages real or personal property or injuries an individual, wherever the person or property is located. A plaintiff establishes a prima facie case of causation in this context if the plaintiff shows: (1) An earthquake has occurred; (2) the earthquake damaged the plaintiff’s property or injured the plaintiff; and (3) the oil and gas operations occurred within an area that has been determined to have experienced induced seismicity by a study of induced seismicity that was independently peer-reviewed. The strict liability established by this bill is not waivable by contract, and a plaintiff has five years after discovery of the damages or injury to file an action.

Max Montag is a 2016 J.D. Candidate at the University of Denver Sturm College of Law.