Court: Colorado Court of Appeals; May 7, 2015; Colorado; State Appellate Court
The dispute centers on underinsured motorist (UIM) benefits, with State Farm Mutual Automobile Insurance Company appealing a jury verdict favoring Dale Fisher for unreasonable delay or denial of benefits under Colorado statutes 10-3-1115 and 10-3-1116. These statutes allow claims against insurers for unreasonable delay or denial of first-party benefits. State Farm's arguments include claims of lack of unreasonable delay, exclusion of expert testimony, and exclusion of evidence regarding Fisher's prior felony convictions. The court rejected all contentions, affirming the jury's verdict.
Fisher was injured in a February 2010 accident where the other driver had $25,000 in liability insurance. Fisher, insured by State Farm with a combined UIM limit of $400,000, claimed $1.35 million in UIM benefits. State Farm consented to a $25,000 settlement with the other driver but later offered $59,572.10 for Fisher’s UIM claim, which Fisher rejected. He filed a complaint against State Farm in July 2011, alleging unreasonable delay in payment.
At trial, it was established that the other driver was wholly at fault and that State Farm had not paid any UIM benefits. The jury ruled in favor of Fisher, awarding $780,572, including a finding of unreasonable delay in payment of medical expenses totaling $61,125.16. The court imposed a judgment of $400,000 in UIM policy limits, a statutory penalty of $122,250.32 for delay, along with $51,100 in attorney fees and $54,175.21 in costs. State Farm appealed only the portion related to the jury's finding of unreasonable delay in medical benefits.
The court upheld that under section 10-3-1115(1), insurers must not unreasonably delay or deny claims. State Farm's assertion that Fisher’s medical expenses were not owed at the time of the lawsuit was rejected, affirming that the claim for unreasonable delay of benefits was valid.
An insurer does not have an obligation to pay an amount from a rejected settlement offer, as argued by State Farm. Fisher contends that his case focused on State Farm's failure to pay reasonable medical expenses related to an accident, which were covered under the underinsured motorist (UIM) policy, rather than on the rejected settlement offer. Colorado law, specifically CRE 408, prohibits using the amount of a settlement offer as evidence of the owed benefits. The jury instructions confirm that the claim presented was about State Farm's unreasonable delay in paying medical expenses, independent of the initial settlement offer.
Regarding compensatory damages, State Farm asserts that for Fisher to have a valid statutory claim for unreasonable delay in paying UIM benefits, the amount owed must either be agreed upon or resolved through litigation. State Farm claims these conditions were not met when Fisher filed his statutory claim, warranting a directed verdict in its favor. However, the court rejects this argument, clarifying that under Colorado's UIM statute, an insurer's obligation to pay benefits is triggered by the exhaustion of the tortfeasor's liability coverage, rather than requiring a prior determination of the amount owed from the tortfeasor.
The amended UIM statute prevents State Farm from using policy language to deny Fisher's claim until the compensatory damages from the underinsured motorist are established. State Farm's argument that it could not have acted unreasonably due to the unresolved amount owed to Fisher is inconsistent with Colorado law. State Farm contends it had no obligation to pay Fisher's UIM claim piecemeal, asserting that a genuine disagreement over the total benefits owed negated any obligation to pay, including medical expenses. This argument is rejected for two reasons.
Firstly, under section 10-3-1115, an insurer's decision to delay or deny a "fairly debatable" UIM claim can still be unreasonable. The statute defines unreasonable conduct as a delay or denial without a reasonable basis. Unlike common law bad faith claims, which require proof of both unreasonableness and knowledge or recklessness, statutory claims only require proof that the insurer denied benefits without a reasonable basis.
Secondly, the concept of "fair debatability" relates to whether the insurer acted with knowledge or recklessness regarding the validity of the claim, but does not automatically determine the reasonableness of the insurer's actions. Even if a claim is "fairly debatable," this does not exempt the insurer from being found unreasonable in denying or delaying payment. Thus, a reasonable person's view of the insurer's justification for denying a claim may weigh against a finding of unreasonableness, but does not serve as a definitive legal threshold.
State Farm's argument that benefits under section 10-3-1115 are only owed once an agreement on damages is reached or the claimant proves their case in court is rejected. The court supports the view that an insurer could evade liability under this reasoning, allowing for unreasonable delays or denials of valid claims. Such a scenario would require the insured to first win a breach-of-contract lawsuit before pursuing a claim under section 10-3-1115, contrary to legislative intent. The dispute over benefits does not invalidate the plaintiff's statutory claim. Additionally, State Farm's assertion that it was not required to pay Fisher's medical expenses on a piecemeal basis is also dismissed. The relevant statutes do not mandate that a full claim must be established before any undisputed benefits are paid. The interpretation of the statutes is a legal question, and the plain language indicates that an insurer's unreasonable delay or denial of a covered benefit, such as Fisher's medical expenses, constitutes a violation of the statute. Thus, State Farm was obligated to avoid unreasonable delays or denials regarding these medical expenses, regardless of the status of the entire UIM claim.
State Farm argues that Colorado Division of Insurance Regulation 702-5:5-1-14 supports its position that it is not legally unreasonable to deny or delay payment on parts of an underinsured motorist (UIM) claim. This regulation, enacted under Colorado statutes 10-1-109 and 10-3-1110, stipulates procedures for imposing administrative penalties on insurers for timely decisions and payments on first-party claims. It requires insurers to make decisions on claims or pay benefits within sixty days of receiving a complete claim, unless there is a reasonable dispute.
State Farm claims that it was not obligated to pay Fisher because it had not received a "valid and complete claim" at the time litigation began. However, the court rejects this argument, noting that the regulation does not apply to civil actions under section 10-3-1115, which governs claims of unreasonable denial or delay in payment. Furthermore, the regulation does not define "valid and complete claim" in a manner that resolves whether partial payment on a UIM claim is required.
The court emphasizes that while administrative regulations can reflect industry standards, they cannot override statutory definitions of reasonableness. It concludes that section 10-3-1115 allows for the possibility of an insurer unreasonably denying or delaying payment of parts of a UIM claim and that State Farm's policy does not require Fisher to establish all damages before any payment is made. Lastly, a State Farm representative confirmed that the company’s policy permits making separate payments on claims. Therefore, State Farm had a legal obligation to avoid unreasonable delay or denial of Fisher's medical expenses, regardless of disputes over other parts of the UIM claim.
State Farm contends that following Fisher’s rejection of its settlement offer, subsequent information uncovered during its investigation undermined Fisher's claims of injury and wage loss. It asserts that this information, alongside Fisher's alleged lack of cooperation, demonstrates a genuine disagreement regarding compensable damages, warranting dismissal of Fisher's statutory claim. State Farm's argument regarding the sufficiency of evidence is interpreted as a challenge to the jury's verdict, emphasizing that reasonableness is typically a factual question for the jury, but may be a legal question when no material facts are in dispute. For State Farm to succeed in its claim for judgment as a matter of law, it must show that the evidence presented at trial was insufficient to support the jury's verdict.
In reviewing evidence sufficiency on appeal, the court must assess whether the evidence, viewed favorably to the prevailing party, supports the verdict. The jury is tasked with resolving factual disputes and determining witness credibility. The court will not overturn the jury's decision if there is competent evidence in the record. In this case, sufficient evidence supported the jury's finding that State Farm unreasonably delayed payment of Fisher's medical expenses, including testimony that Fisher's medical bills, totaling $61,125, remained unpaid from September 2010 until the lawsuit in July 2011, despite State Farm’s acknowledgment of their reasonableness up to February 2011. Although State Farm presented conflicting evidence regarding the cause of Fisher's injuries and his cooperation, it was ultimately the jury's responsibility to resolve these issues.
Regarding the constitutional challenge, State Farm argues that the interpretation of sections 10-3-1115 and -1116 could violate its due process rights by not providing fair notice of potential punishment. The court declines to address this argument as it was not raised during the trial, adhering to the principle of not considering new arguments presented for the first time on appeal.
State Farm's argument regarding the improper presentation of its constitutional challenge due to lack of notice to the Colorado Attorney General is not addressed, as no constitutional issues were raised in the trial court. The court finds that the exclusion of testimony from State Farm's expert was harmless, despite State Farm's claim of abuse of discretion. The trial court had previously excluded the expert's testimony on the grounds that it contradicted Colorado law regarding unreasonable denial of claims. Fisher's motion to exclude State Farm's expert was granted, on the basis that it merely rebutted Fisher's expert, who had already been excluded.
In reviewing the trial court's discretion regarding expert testimony, the standards set by CRE 702 and CRE 403 were considered. CRE 702 allows expert testimony if it aids in understanding evidence, while CRE 403 permits exclusion if the testimony's probative value is substantially outweighed by potential prejudice or confusion. Even if the testimony was admissible, its exclusion does not warrant reversal unless it substantially affected the trial's outcome or fairness. State Farm contends that the exclusion was prejudicial since determining the reasonableness of its conduct required evidence of industry standards, which are not commonly known. However, the Colorado Supreme Court has indicated that such standards can be established through legislative enactments, which in this case define "unreasonableness" for relevant claims, negating the necessity for expert testimony.
In an insurance bad faith claim, it is established that expert testimony is not required if the investigation and denial of a claim are within the common knowledge of ordinary people. Claims under section 10-3-1115 share this characteristic, allowing for cases where expert testimony may be unnecessary. State Farm's argument regarding the necessity of expert testimony, based on insurance industry standards, was rejected. The court assessed whether the exclusion of the expert's testimony significantly affected the trial's outcome or fairness.
State Farm's expert opined that: (1) State Farm had no obligation to pay the initial settlement offer to Fisher; (2) State Farm never acknowledged Fisher's entitlement to medical expense payments, which were disputed; and (3) Fisher's lack of cooperation with the investigation and inconsistent information made claims about undisputed medical expenses inaccurate. Although Fisher’s lay witnesses testified about unreasonable delay related to the initial settlement offer, this was not the claim presented to the jury, which could have led to confusion.
The jury was instructed that State Farm's settlement offer could not be used to prove liability, rendering any expert testimony on this point duplicative. State Farm’s representative argued that the benefits owed were disputed and attributed delays to Fisher’s lack of cooperation. The court noted that the expert's testimony would have added little, merely asserting that State Farm's actions aligned with unspecified industry standards. Without detailed industry standards or explanations of State Farm's conduct, the exclusion of this testimony was not deemed prejudicial enough to warrant a new trial.
State Farm's claim that its expert would testify about the reasonableness of not paying medical bills in the context of a UIM claim was rejected, as this argument contradicted Colorado law. Therefore, the exclusion of the expert opinion did not result in legal prejudice for State Farm.
The expert's report lacked the opinion stated in State Farm's offer of proof, violating C.R.C.P. 26(a)(2)(B), which requires a complete statement of all opinions and their basis. Failure to disclose necessary information, unless harmless, prevents a party from presenting undisclosed evidence at trial (C.R.C.P. 37(c)(1)). The trial court's exclusion of State Farm's expert testimony was justified and did not warrant a new trial. Regarding Fisher's prior felony convictions, State Farm argued that these should be admitted to assess his employability and lost income, as Fisher claimed his injuries solely caused his income loss. Fisher successfully moved to exclude evidence of a felony conviction over ten years old, and the trial court maintained this exclusion despite State Farm's request to reconsider it after the psychologist's testimony about Fisher's employability. Under Section 13-90-101, C.R.S.2014, while felony convictions can affect a witness's credibility, convictions more than five years old are inadmissible in civil actions. The court upheld the exclusion of Fisher's past felony conviction from evidence.
In 1979, a court division ruled in Havens v. Hardesty that section 13-90-101 barred the admission of a plaintiff's prior felony conviction for mitigating damages, as the conviction was over five years old and the statute's language was deemed mandatory. Both parties assumed the trial court's exclusion of Fisher's felony convictions was based on this ruling, though Fisher's counsel suggested it may have been under CRE 403. Fisher's motion in limine cited both Havens and evidentiary rules as bases for exclusion. State Farm, the appellant, failed to provide a transcript from the pretrial hearing or sufficient record for review, leading to a presumption that the trial court's ruling was correct. Consequently, State Farm is denied a new trial on economic damages.
The judgment is affirmed, with Judges Lichtenstein and Navarro concurring. Regarding claims under section 10-3-1115, C.R.S. 2014, it was clarified that a plaintiff need only show that an insurer denied or delayed payment without reasonable basis, rather than the entire claim. Even if State Farm required full claim establishment before partial payment, such a policy provision would be void, as mandated coverage cannot be diluted or limited. Additionally, the argument regarding policy interpretation was insufficient to preserve a constitutional claim for appeal. Notably, while both parties referred to multiple felony convictions, the record only confirms a single felony burglary conviction without further clarification or citation.
