Benefits Delayed versus Benefits Denied: No Distinction Says Colorado Supreme Court
The Colorado Supreme Court recently handed down several significant decisions interpreting the bad faith statutory landscape in Colorado. In American Family Mutual Insurance Co. v. Barriga, penned by Chief Justice Nancy Rice, the Court considered whether the intent of the Colorado statutory bad faith claim was to reduce a successful litigant’s bad faith statutory damages by any payments ultimately recovered by the insured (but unreasonably delayed). 2018 CO 42. The Court pondered whether insurance carriers that delayed payments to their insureds should be treated any differently under the statute than those that outright denied benefits.
The Barrigas’ apartment building was damaged by a fire. American Family Mutual Insurance Company (American Family) made ongoing payments to a contractor hired to repair the damages, which totaled $209,816.43. However, once significant repairs were made, the contractor revised the initial estimate, leading American Family to initiate the independent appraisal process for an impartial assessment of the necessary repair costs. American Family subsequently paid the difference between the appraiser’s assessment ($322,141.79) and prior sums paid.
Unhappy with American Family and the appraisal process, the Barrigas brought suit against their insurance carrier for unreasonably delaying their insurance benefits pursuant to the Colorado bad faith statute, along with several other claims. Section 10-3-1115 C.R.S. states that “A person engaged in the business of insurance shall not unreasonably delay or deny payment of a claim for benefits owed to or on behalf of any first-party claimant.” Should a first-party claimant, such as the Barrigas, be aggrieved pursuant to section 10-3-1115, then the claimant is entitled to bring a claim and recover reasonable attorney fees and court costs and two times the covered benefit. C.R.S. § 10-3-1116(1). While section 10-3-1116 is not the exclusive remedy available to claimants, damages awarded under that section are not recoverable in any other action or claim. § 10-3-1116(4).
Judgment & Awards
After a jury trial, judgment was entered on the Barrigas’ behalf as to all of their claims, and $136,930.80 was awarded as to the statutory bad faith claim specifically. The trial judge recalculated the allowable damages based on his interpretation of the bad faith statute. First, he multiplied the jury award by two ($136,930.80 x 2 = $273,861.60), and then reduced that award by the amount of the delayed payment, resulting in a total award as to the statutory claim of $146,200.80. An appeal of the Court’s calculus followed.
The Supreme Court relied on the plain language of the text to direct its inquiry into the Legislature’s intent in crafting the damages provision of the bad faith statute. Justice Rice observed first that the statute is bereft of a command to reduce a section 10-3-1116(1) award by the amount of benefits unreasonably delayed by the insurer. American Family argued that failure to adjust the award by the paid benefits would lead to an absurd result of double recovery in instances where the benefit was paid, but was just delayed. The Court addressed this concern by again pointing to the plain language of the statute, which explicitly permits other avenues of recovery to the wronged insured, while limiting damages recoverable in any other “action or claim.”
A breach-of-contract claim may coexist, for example, with a statutory bad faith claim and permit a claimant whose benefits were denied to recover the same amount as the insured whose damages were delayed. The Court held that the breach-of-contract claim and section 10-3-1116(1) claim do not hinge on the same set of facts, and therefore do not remedy the same wrong. Therefore, the Court held that any concern was obviated that an insured that faced an unreasonable delay of benefits would be in a “superior” position to a similar insured that suffered an unreasonable denial of benefits or otherwise receive a windfall.
The import of Barriga is significant. The Colorado bad faith statute definitively applies with equal force to cases of delayed and denied benefits. The result could have a chilling effect on an insurance carrier’s willingness to pay benefits where coverage is disputed when it may be in the carrier’s best interest to hedge against any risk associated with a potential extracontractual claim. Under the factual underpinnings of the Barriga case, it is unclear what incentive, if any, an insurance carrier has to mollify an obstreperous insured or resolve coverage issues in an insured’s favor once litigation is imminent. Alarmingly, a sophisticated plaintiff’s attorney may be more inclined to pursue a bad faith claim to recover twice the amount of covered benefit and fees, as opposed to accepting the lesser amount of benefits alone.
This decision by the Colorado Supreme Court and another decision issued the same day in Rooftop Restoration, Inc. v. American Family Mutual Insurance Company continue the Colorado line of decisions interpreting the language of C.R.S. §§ 10-3-1115 and 10-3-1116 in favor of insureds.