Kisselman Case Summary
Kisselman v. American Family Mutual Ins.
No. 10CA1453, Colo. Ct. App. (December 8, 2011)
This case analyzes the very narrow issue of whether sections 10-3-1115 and -1116 C.R.S. 2011 apply prospectively to Kisselman’s allegations of American Family’s post-effective date acts of unreasonable delay or denial of payment of claim benefits.
David Kisselman was injured in a car accident caused by an underinsured driver in 2005. Kisselman received a settlement of $25,000 from the other driver’s limited policy in 2006. Between 2006 and 2009, Kisselman and American Family were unable to resolve the claim, and Kisselman filed a complaint on April 1, 2008 in Denver District Court in order to preserve his claim under the statute of limitations. After arbitration, American Family paid Kisselman $1,075,000 (his policy limit minus $25,000 already paid) on January 15, 2009.
During this extended negotiation and arbitration phase, the Colorado General Assembly enacted two new statutes, sections 10-3-1115 and -1116, on August 5, 2008 (the “Statutes”). Section 10-3-1115(1)(a) prohibits an insurer from unreasonable delay or denial of policy claim benefits, and section 10-3-1116(1) provides first-party claimant remedies for breach of the duty set forth in §1115. This remedy allows for recovery of reasonable attorney fees, court costs, and “two times the covered benefit.”
Kisselman amended his district court complaint on April 29, 2009 to include a claim under the new statute(s), and in February 2010 filed a motion for determination of a question of law, requesting the court determine whether sections 10-3-1115 and -1116 applied to his case. At the hearing on April 9, 2010, the parties made clear that they were advancing and arguing only that the statutes did or did not apply prospectively to this case. The trial court issued its ruling on April 21, 2010 that the statutes did not apply prospectively to new, post-effective date acts of unreasonable delay by American Family, and therefore were inapplicable in this case. The parties filed a stipulated motion for certification under C.R.C.P 54(b) to stay the remaining issues pending immediate appeal of that decision, and this appeal followed.
The Colorado Court of Appeals made the following determinations by reviewing the proper interpretation of sections 10-3-1115 and -1116 de novo.
1. The Statutes Create a New Private Right of Action
The plain language of sections 10-3-1115 and -1116 “demonstrates the General Assembly’s intent to create an express private right of action for violation of those statutory sections.” Sections 10-3-1115(1)(a) and (2) declare that an insurer shall not unreasonably delay or deny payment of claims to any first-party claimant, and define the unreasonableness standard. Section 10-3-1116 expressly creates a private right of action to obtain certain remedies for violations of section 10-3-1115, and states that the action authorized is in addition to, and does not limit or affect, other actions available by statute or common law.
2. The Statutes Announce a Standard of Liability Different from that for Common Law Bad Faith Claims
The common law bad faith standard is codified in section 10-3-1113(1), which states that the duty of good faith and fair dealing is breached if the insurer delays or denies payment unreasonably. The reasonableness standard for common law bad faith claims brought by first-party claimants is knowledge or reckless disregard that the delay was unreasonable. Section 10-3-1113(3).
The Statutes at issue here provide a different standard of liability than found in section 10-3-1113. While section 10-3-1115(1)(a) provides that an insurer shall not unreasonably delay or deny payment of benefits to or on behalf of a first-party claimant, similar to -1113, the definition of reasonableness is quite different. Section 10-3-1115(2) states: “Notwithstanding section 10-3-1113(3), for the purposes on an action brought pursuant to this section and section 10-3-1116, an insurer’s delay or denial was unreasonable if the insurer delayed or denied authorizing payment without a reasonable basis for that action.” The statutory language of section 10-3-1115 expressly deletes the requirement that an insurer knew or recklessly disregarded the fact that its delay or denial was unreasonable, because any other interpretation simply restates the common law standard in section 10-3-1113 and nullifies the reasonable basis standard and prefatory language of section 10-3-1115(2). The new “reasonable basis” standard’s meaning was not argued before the court and therefore was not addressed in the holding.
3. The General Assembly Intended for the Statutes to Apply Prospectively to all Post-Effective Date Conduct of Insurers, Regardless of When the Original Claim was Made
The trial court ruled that the Statutes were inapplicable to American Family’s post-effective date conduct because Kisselman’s injury and his claim against American Family occurred and accrued before the Statutes’ effective date of August 5, 2008, and that individual instances of continuing delay following that date were not a separate and distinct breach of the duty of good faith and fair dealing. In reaching this decision, the trial court relied on James River Ins. Co. v. Rapid Funding, LLC (D. Colo. No. 07-CV-01146-CMA-BNB, Mar. 2, 2009). The statement of law by the trial court, American Family, and the James River court, that Colorado does not recognize a ‘continuing’ or ‘ongoing’ bad faith claim, is correct “as it pertains to common law bad faith claims.” However, as the Court of Appeals indicates previously, a claim brought under sections 10-3-1115 and -1116 and a common law bad faith claim is not the same thing.
The language of section 10-3-1115(1) clearly indicates that the General Assembly intended to prohibit particular conduct by insurers in their handling of claims benefits, and that after the effective date of August 5, 2008 insurers are prohibited from engaging in conduct or acts that delay or deny payment of benefits without a reasonable basis for doing so. “An insurer breaches this duty if it engages in post-effective date acts of unreasonable delay or denial regardless of when an insured originally made a claim for benefits under his or her insurance policy.”