Insurance Companies in Colorado have tried everything to get around C.R.S. 10-3-1115, -1116. They have tried to persuade courts the statute only requires assessment of one multiple of covered benefits rather than “two times the covered benefit” as the statute reads.
They also try to increase the costs and time spent in discovery—usually attempting to expand discovery exponentially so plaintiffs are less likely to be able to afford the costs and time for discovery. Most recently, the Colorado defense bar has come up with the idea of using Designation of Non-Parties per C.R.S. 13-21-111.5, to shift liability away from an insurance company for its bad faith, delay or denial of insurance benefits. This tactic also increases the scope of discovery because, if allowed, the designation expands discovery into every individual or company the insurer designates as a non party at fault. However, this litigation tactic is very likely a loser for insurance companies for the following reasons.
1. C.R.S. 13-21-111.5 Designation of Non Parties does not apply to breach of contract claims. See C.R.S. 13-21-111.5(1).
2. With regard to the tort claims, bad faith or violation of C.R.S. 10-3-1115, an insurance company’s duty of good faith and duty to act reasonably in promptly paying covered claims is a non-delegable duty. See Cary v. United of Omaha Life Ins. Co., 68 P.3d 462, 466 (Colo. 2003).
Insurance contracts are not ordinary commercial contracts. Every insurer owes its insured a non-delegable duty of good faith and fair dealing. Because of the “special nature of the insurance contract and the relationship which exists between the insurer and the insured,” an insurer’s breach of this duty gives rise to a separate cause of action sounding in tort. . . . . The duty is non-delegable so that insurers cannot escape their duty of good faith and fair dealing by delegating tasks to third parties.1
Defendants cannot use a Designation of Non Parties when their duty is non-delegable. See C.R.S. 13-21-111.5(6)(f)(I).
3. C.R.S. 10-3-1115, -1116 was created specifically to punish insurers for bad actions.
[S]ection 10–3–1115(1)(a) provides 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.” (Emphasis added.) The clear import of this language shows that the General Assembly intended to prohibit conduct by insurers in their handling of claims for benefits owed to their insureds.2
Insurance companies are attempting to place the blame for unreasonable delay or denial on other non parties—such as public adjusters, contractors, consultants, or experts. But this is illogical given that 10-3-1115 only applies to insurers. It is not common law negligence—there are no 10-3-1116 damages that flow from or must be proven by a policyholder plaintiff. Rather, the 10-3-1116 benefit assessed against an insurance company is a penalty — two times the covered benefit.
There is no theory or legal argument that would allow this penalty to be divided or partially assessed against a non party public adjuster or contractor. How can a contractor be responsible for paying a penalty under a statute that was created only to punish bad insurers?
4. Designations of Non Parties must be strictly construed, and courts should strike any designation that fails to establish the negligence of the non party and that the non party was the actual cause of the plaintiff’s damages. “A nonparty-at-fault designation is only proper when the defendant has made out a prima facie case that the potential nonparty breached a legal duty to the plaintiff.”3
Prevent insurers from improperly expanding the scope of discovery by striking these Designations of Non Parties at Fault. In doing so, you may also be able to recover attorney’s fees.4 The designation of non parties by the insurer is vexatious or frivolous if the insurer designated the non parties without substantial justification.
1 Cary v. United of Omaha Life Ins. Co., 68 P.3d 462, 466 (Colo. 2003).
2 Kisselman v. Am. Family Mut. Ins. Co., No. 10CA1453, 2011 WL 6091708 (Colo. App. Dec. 8, 2011) cert. denied, 12SC51, 2012 WL 4482571 (Colo. Oct. 1, 2012).
3 Stone v. Satriana, 41 P.3d 705, 712 (Colo. 2002).
4 See C.R.S. 13-17-102(4).