August 25, 2019

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.

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.