Colorado Business Litigation Lawyer Blog

In an earlier post (Part I - 11/30/2010), I introduced the background of this case. It involves a nonresident passenger severely injured in an auto accident who was omitted in the settlement by the driver's insurance company. Claiming that the insurance company refused in bad faith to settle with her for the $100,000 in remaining insurance coverage, the nonresident passenger then sued the driver. The insurance company undertook defense of the case.

While the case was pending, the plaintiff and the driver entered into an agreement whereby an agreed judgment in the amount of $4 million was entered against the driver and the driver assigned (transferred) to the passenger any bad faith claim he had against his insurance company. The agreement provided that the passenger would not attempt to enforce the judgment against the driver. The insurance company, which had internally evaluated the passenger’s damages at between $2 million and $5 million, authorized its insured driver to enter into the agreement.

The passenger then sued the driver’s insurance company for an alleged bad faith refusal to settle her claim within the insurance policy limits. One of the insurance company’s defenses was that even assuming there was any bad faith on its part, the passenger could not prove that the insured driver suffered any monetary damage-- a fundamental requirement for a successful bad faith claim-- since the passenger had agreed that she would not enforce the $4 million judgment against the driver. On that basis, the trial court dismissed the passenger’s claim and the Colorado Court of Appeals affirmed the judgment.

The Colorado Supreme Court overturned the court of appeals decision by a 4-3 vote, saying that the pretrial assignment of the alleged bad faith insurance claim and the entry of the agreed judgment, with an agreement not to enforce the judgment, were recognized as valid in Colorado, assuming the judgment amount was reasonable and not collusive. The mere entry of the agreed judgment was sufficient to satisfy the requirement of proof that the driver was damaged, assuming that the other elements of bad faith refusal to settle within policy limits can be proved. And even if the amount was not reasonable, the injured plaintiff still has the right to prove the actual amount of damages in a trial.

The case will be returned to the trial court for further proceedings, which may result in a settlement or a trial before a jury.

The Colorado Supreme Court decided November 22, 2010, that the Colorado Court of Appeals committed error when it upheld the trial court’s grant of summary judgment (a decision on the law without a trial) in favor of an insurance company in a bad faith case brought by a severely injured vehicle passenger.

The vehicle’s driver lost control, seriously injuring five passengers, including one passenger who was rendered paraplegic (complete paralysis form the waist down) in the accident. The driver’s insurance provided coverage of $100,000 per person and $300,000 per accident. The company deposited the full $300,000 with the court and filed what is known as an interpleader case, naming all of the injured passengers as defendants and asking the court to decide how the insurance proceeds should be apportioned.

The insurance company settled with four of the injured passengers for a total of $200,000. Because the insurance company could not serve the remaining passenger, who resided in Florida, with legal process, the court had no jurisdiction to litigate the nonresident’s claim.

The nonresident passenger, claiming that the insurance company refused in bad faith to settle with her for the $100,000 in remaining insurance coverage, then sued the driver. The insurance company undertook defense of the case, as it was legally obligated to do.

In a later post (Part 2 - 12/02/2010), I will elaborate on the outcome of this case.

On January 29, 2010, a Boulder County, Colorado jury awarded $37 million to Jennifer Latham of Lafayette, Colorado, whose health insurance was canceled after the woman sustained severe injuries in an auto accident, including multiple fractures and a brain injury.

Latham had purchased a health insurance policy from Assurant Health just five months before the 2005 accident. After she spent a month in the hospital and another month in rehabilitation at a cost of about $185,000, Assurant Health canceled her policy and refused to pay her medical bills, claiming that Latham had failed to disclose in her application an emergency room visit for shortness of breath and treatment for a uterine prolapse. Latham claimed her insurance company acted in bad faith. The jury agreed with Latham.

Assurant Health was one of the companies investigated by the House Subcommittee on Oversight and Investigations for its policy cancellation practices.

It is not known if Assurant Health will appeal the verdict.