Holland & Hart Insurance Law Blog

It’s Not Our Fault—Insurers Designating Non-Parties at Fault in Bad Faith Claims

Colorado law allows defendants in tort actions to designate third parties for damages alleged by plaintiffs.  Commonly referred to as a “non-party at fault” designation, this procedure is a creation of Colorado statute.  See C.R.S. § 13-21-111.5. 

Insurers are increasing looking at this strategy to avoid liability for their own actions, particularly bad faith claims brought based on their conduct in adjusting claims.  Unfortunately, in a classic case of “bad facts making bad law,” they have a Colorado Supreme Court case to point to:  Slack v. Farmers Insurance Exchange, 5 P.3d 280 (Colo. 2000).  In Slack, a policyholder sought benefits related to injuries she suffered in an auto accident.  (Under Colorado’s “no-fault” law in place at the time, drivers’ injuries were covered by their own auto insurance up to a certain level.).  The insurer required that the policyholder submit to an IME (“independent medical exam”) and referred her to a chiropractor who assaulted her.  Unfortunately, Farmers had previously received a complaint that this chiropractor had assaulted another policyholder during a prior IME.

D&O Lessons From NPR

 NPR’s recent termination of Juan Williams brings to light some interesting risk management and directors and officers insurance issues.  NPR’s CEO, Vivian Schiller said in response to the firing that Mr. Williams’ feelings about Muslims should be between “his psychiatrist or his publicist—take your pick.”  Mr. Williams was not an employee of NPR; he was an analyst working as an independent contractor.  Typical independent contractor agreements, in this context, allow the parties to part ways without having to show cause and, therefore, preventing any liability for terminating the agreement.  However, Ms. Schiller’s ill-advised comments to the media could expose NPR. 

When is Advertising Not Advertising?

After hearing the client has been sued, the first thing a good lawyer tells his business client is to look at all available insurance policies to see whether there is insurance coverage for the claim.  A successful insurance coverage determination can mean the difference between years of expensive litigation, the provision of a defense and even payment for damages. 

In the recent decision of DISH Network Corp. v. Arch Specialty Insurance Co., et al., 09-cv-00447 (U.S. District Court, Colo. Aug. 19, 2010), Judge John Kane considered the duty of insurers to defend under standard language providing coverage for “advertising injury.”   The insurance coverage dispute originated from a 2007 lawsuit where a plaintiff sued DISH, alleging patent infringement based on DISH’s use of automated telephone systems to allow customers to perform pay-per-view ordering.

Should An Insurance Company Be Allowed to Seek Reimbursement of Defense Costs? (Part 1 of 2)

An insured acquires two separate and distinct protections when he pays the premium for a typical general liability policy.  Standard ISO general liability policies provide indemnification for covered legal liability up to the per occurrence or general aggregate limit of the policy.  Additionally, a general liability policy also provides “litigation” insurance, that is, the insurer has a duty to defend the policyholder against “any” suit seeking damages for bodily injury or property damage.  The term “any” encompasses suits that are groundless, false or fraudulent.  Commercial General Liability, Malecki (1996).  Importantly, the cost of defense is not subject to the limits of insurance applicable to the duty to indemnify.  The cost of defense is in addition to the policy limits.  It makes sense then that the majority rule in the United States is that the duty to defend is independent from and broader than the duty to indemnify.  Couch on Insurance, 3rd Ed. §200:1.

Should An Insurance Company Be Allowed to Seek Reimbursement of Defense Costs? (Part 2 of 2)

Courts finding that insurers have a right to reimbursement acknowledge that there are no express provisions in the policy allowing reimbursement so they have had to go outside of the contract language to justify their conclusions.  The unjust enrichment theory states that the insurer bestowed a benefit upon the insured, the insured appreciated the nature of the benefit and accepted the benefit without consideration.  In such a situation, courts have concluded it would be unjust to allow the insured to retain the benefit without payment for the value of the defense. 

Why A Garnishment Action Against An Insurer?

The single most important reason for using a garnishment action against an insurance company is the expedited nature of the proceeding.  The procedure, in most instances, starts with the filing of a form and the issuance of a writ of garnishment by the court clerk.  The writ of garnishment is served on the insurer, who then has a limited amount of time to file its answer.  Traditionally, the insurer will file an answer denying any debt owed to the judgment debtor.  The judgment creditor then has a limited amount of time to file a traverse of answer.   The court will then usually set a case schedule, set a scope of discovery,  rule on any other pre-hearing issues and set a hearing date on the garnishment action.