[co-author: Guzel Sadykova]

Booker v. State Farm Mutual Automobile Insurance Company, No. 17-cv-03133-MEH (D. Colo. May 6, 2019)

Stephanie Booker sustained injuries as a result of an automobile accident caused by another driver. On Booker's behalf, her insurer State Farm consented to settle with the insurer of the driver who caused the accident for the policy limit of $25,000. Booker believed that this settlement did not adequately compensate her for her injuries and demanded underinsured motorist coverage from State Farm, the total of which at the time was $50,000. This demand relied, among other things, on an expert’s testimony which concluded that Booker’s lifetime earning capacity declined as a result of her injuries from the accident, and that these damages exceeded her UIM policy limit. State Farm declined Booker’s demand and contended that it did not account for any lost wages in its computation of Booker’s damages, because she "actually made more money the year of the accident and the two years after that than she had made in [the previous two years]." Booker brought an action against State Farm for common law bad faith breach of an insurance contract and under Colorado’s Unreasonable Delay and Denial of Insurance Benefits statute. State Farm moved for summary judgment, arguing that Booker failed to demonstrate material factual issues as to whether it acted unreasonably in denying her claim, an element Booker had to establish to move forward with the statutory and bad faith claims.

The district court denied State Farm's motion. The court determined that Booker had presented evidence of material factual issues as to whether State Farm acted unreasonably in investigating her claim and denying coverage. The court stated that the reasonableness of an investigation is determined objectively under industry standards, which can be established by applicable state law. There are two provisions in Colorado law that establish these standards. First, "an insurer may not deny or delay a claim without 'conducting a reasonable investigation based upon all available information.'" Second, "an insurer must provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement[.]" Relying on these provisions, the court concluded that material factual issues exist as to whether State Farm had been reasonable in its determination that Booker had not incurred any lost wages simply because she had made more money in the years following the accident than in the years before the accident. According to the court, a thorough investigation could have revealed that Booker had changed her business model, which allowed her to make more money while she worked fewer hours due to her injuries. Moreover, State Farm's purported decision to disregard expert testimony that demonstrated Booker's reduced earning capacity after the accident also could be interpreted by a jury as unreasonable conduct. The court added that State Farm's "argument that its conduct was reasonable because Booker could have provided additional documents to support her alleged damages is not relevant to whether it acted reasonably when it denied her claim."