On March 14, 2022, the Colorado Supreme Court held that a bad faith cause of action does not accrue against an insurance company’s adjuster employee. This important decision affirms that Colorado’s claims adjusters cannot be held liable in bad faith for doing their jobs, placing liability for unreasonable denial or delay in paying first-party policy benefits solely with insurers. It also settles a split regarding the interpretation of Colorado’s bad faith statute between the Colorado intermediate appellate court, which found no cause of action against claims adjusters, and a federal district court, which did.

Fact and Procedural Background

The insured, Alexis Skillet, was in a car accident and sought underinsured motorist coverage from Allstate. An Allstate employee, Collin Draine, handled the claim. Draine determined no coverage was due and denied the claim.

Skillet sued Allstate and Draine in Denver District Court. Allstate removed the action to federal court, arguing that Draine was fraudulently joined to destroy diversity. Allstate’s argument relied on an interpretation of Colorado’s first-party bad-faith statute to apply solely to an insurer, not its employees. The District Court certified the statutory interpretation to the Colorado Supreme Court.

The Statutes

Colorado Revised Statute section 10-3-1115(1)(a) provides: “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.)

Colorado Revised Statute section 10-3-1115(2) provides: “Notwithstanding section 10-3-1113(3), for the purposes of 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 of a covered benefit without a reasonable basis for that action.” (Emphasis added.)

Colorado Revised Statute. section 10-3-1116(1) creates a cause of action under the following circumstances: “A first-party claimant as defined in section 10-3-1115 whose claim for payment of benefits has been unreasonably delayed or denied may bring an action in a district court to recover reasonable attorney fees and court costs and two times the covered benefit.”

Analysis

The court applied deep-rooted statutory interpretation tenets to sections 10-3-1115 to 1116. The goal of such interpretation is to give effect to the intent of the General Assembly, divining such intent from the plain and ordinary meaning of the words of the statute, in context, and in their entirety.

Skillet argued that the use of the phrase “a person” in section 10-3-1115(1)(a) specifically allowed a cause of action against an individual claim adjuster. Her argument had been accepted by a trial-level federal court (Seiwald v. Allstate Property & Casualty Insurance Co., No. 20-cv-00464-PAB, 2020 WL 6946563 (D. Colo. Nov. 24, 2020)), but rejected by the Colorado Court of Appeals (Riccatone v. Colorado Choice Health Plans, 2013 COA 133, 315 P.3d 203).

Skillet noted that section 10-3-1102(3) defines “person” to specifically include adjusters. But, the court noted that section also indicates that the definitions therein apply “unless the context requires otherwise.” The court found that an interpretation to allow for a cause of action against an individual did not make sense in light of the context of the provision that defines unreasonable conduct of “an insurer,” since such a reading left a “statutory gap” — no statutory guidance whatsoever — as to what standard applies to an adjuster’s conduct. The court also found that this interpretation did not make sense in light of the entitlement of first-party claimants to bring suit for “payment of benefits” and an award of “two times the covered benefit” since the duty to pay policy benefits is only held by the insurer, not its employees.

Takeaways

A cause of action for bad faith against an individual adjuster remains the exception, not the rule, and Colorado joins those states finding that the specifically proscribed liability attaching to insurance companies for unreasonable claims handling conduct does not extend to its employees.

That said, this case may not present the most difficult questions regarding adjuster liability. It concerns a cause of action for bad faith, not some alternate theory that may be seen to more comfortably accommodate personal liability — such as negligent misrepresentation. And it concerns actions that, it appears, no one disputed were within the course and scope of the adjuster’s employment.