Insurance Expert's TestimonyThe Tenth Circuit Court of Appeals just heard an appeal in a case dealing with the handling of a claim under policies providing underinsured-motorist coverage in which an insurance expert’s testimony helped shape the outcome.

The tortfeasor in this action bought his fiancée a van for her 50th birthday, and in celebrating her birthday and the van, Tortfeasor had too much to drink. He gathered four friends in the van, one of whom was the plaintiff. Plaintiff said she expected Tortfeasor only to show off the van and to photograph the group. However, he took off with his friends in the van.

Tortfeasor crashed and caused serious injuries to Plaintiff. She obtained $240,000 in insurance benefits, but claimed additional benefits under her coverage for underinsured-motorist benefits. The insurer initially denied the claim, but ultimately paid her an additional $350,000, the maximum amount she could receive under the underinsured-motorist coverage.

Plaintiff sued Insurer under Colorado’s common law and statutory law, claiming an unreasonable denial or delay in paying benefits. In effect, she sought two payments from Insurer: one from Tortfeasor’s liability coverage and one from her underinsured-motorist coverage.

Plaintiff’s injuries triggered Tortfeasor’s liability coverage and Plaintiff’s underinsured-motorist coverage. Insurer, coincidentally, insured both Tortfeasor for his liability and Plaintiff for underinsured-motorist coverage. Thus, Circuit Judge Robert E. Bacharach noted in his opinion for the Tenth Circuit that Insurer bore dual responsibilities: (i) to indemnify Tortfeasor for liability to his passengers, including Plaintiff; and (ii) to pay Plaintiff the amount that she was unable to recoup from Tortfeasor because of his lack of adequate liability coverage.

The benefits totaled $350,000 from the two separate policies. Plaintiff demanded the full $350,000 from Insurer, which was divided among all four passengers for their injuries. If she received the full amount, it would have brought her total payments to $590,000. To justify this, she claimed she had seven forms of injury—totaling anywhere from $600,000 to $1.1M. Insurer denied the claim, stating that the prior payment of $240,000 had fairly compensated Plaintiff for the amount that Tortfeasor owed.

Not satisfied with this amount, Plaintiff sued Insurer, invoking Colorado common law and statutory law and alleging an unreasonable denial or delay in paying benefits. During the litigation, Insurer obtained additional information and ultimately paid Plaintiff the complete $350,000 in underinsured-motorist coverage.

Though Plaintiff had received the most she could recoup under the policies, she claimed that Insurer had unreasonably denied or delayed payment. Insurer moved for summary judgment, arguing that the handling of the claim was reasonable as a matter of law. Plaintiff moved for partial summary judgment on her statutory claim. The district court granted Insurer’s motion, which led the court to deny Plaintiff’s motion as moot.

Under both the statute and the common law, Plaintiff was required to show that Insurer acted unreasonably.

Judge Bacharach explained that the duty of good faith requires the insurer to reasonably investigate an insured’s claim, and that the reasonableness of an investigation is determined objectively under industry standards. The judge noted that these standards may be established through expert opinions or state law, and in this case, the industry standards were proven through both sources: an insurance expert’s testimony and a Colorado statute.

The Court stated that Colorado law creates standards for insurers’ practices, and under these standards, an insurer may not deny or delay a claim without “conducting a reasonable investigation based upon all available information.” In conducting this investigation, Judge Bacharach wrote that the Court held the insurer must “promptly and effectively communicate with anyone it was reasonably aware had . . . information pertaining to the handling of [a plaintiff’s] claim,” citing Dunn v. Am. Family Ins. (Colo. App. 2010).

Plaintiff’s expert witness detailed the applicable industry standards in an expert report. Thus, with proof of these industry standards, Judge Bacharach stated that the question was whether a reasonable fact-finder could conclude that Insurer breached its duty of good faith. Given the insurance expert’s testimony and the state statute, the Tenth Circuit reversed the award of summary judgment to Insurer, vacated the denial of Plaintiff’s motion for partial summary judgment, and remanded the case to the district court for further proceedings.

 

Peden v. State Farm, 2016 U.S. App. LEXIS 20463 (10th Cir. November 15, 2016)