Farmers Group, Inc. v. Williams

805 P.2d 419, 15 Brief Times Rptr. 130, 1991 Colo. LEXIS 44, 1991 WL 10856
CourtSupreme Court of Colorado
DecidedFebruary 4, 1991
Docket89SC552
StatusPublished
Cited by212 cases

This text of 805 P.2d 419 (Farmers Group, Inc. v. Williams) is published on Counsel Stack Legal Research, covering Supreme Court of Colorado primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Farmers Group, Inc. v. Williams, 805 P.2d 419, 15 Brief Times Rptr. 130, 1991 Colo. LEXIS 44, 1991 WL 10856 (Colo. 1991).

Opinions

Justice ERICKSON

delivered the Opinion of the Court.

We granted certiorari to review Williams v. Farmers Insurance Group, Inc., 781 P.2d 156 (Colo.App.1989), which held that section 10-4-708(1), 4A C.R.S. (1987 & 1990 Supp.), did not provide the exclusive remedy against automobile insurers that refuse to pay benefits in bad faith, and that the burden of proving willful and wanton conduct under section 10-4-708(1) was by a preponderance of the evidence. We affirm.

On October 26, 1980, Rodney Williams and his common-law wife, Jo Maria Gate-wood-Williams, were injured when a rock fell on their car during a snowstorm on Guanella Pass, Colorado. Williams notified his automobile insurance carrier, whose parent company was Farmers Group, Inc., of the accident and submitted claims for personal injury protection benefits under his policy. Farmers paid those claims for five months, but then ceased paying any benefits after the Williams refused to sign several releases and to undergo multiple examinations requested by Farmers. In September 1982, Williams filed a complaint against Farmers alleging breach of contract, that the breach was willful and wanton, extreme and outrageous behavior, and that Farmers committed the tort of - bad faith breach of contract.

In December 1983, a jury returned a verdict in favor of Williams on the willful denial of personal injury protection benefits and tortious bad faith breach of contract, but denied Williams’ claim for punitive damages for extreme and outrageous conduct. The jury awarded Williams contract benefits of $10,922, treble damages of $32,767 (as provided by Colorado’s No-Fault Act), and compensatory damages on the bad faith tort claim of $350,000. In May 1984, the district court granted Farmers’ motion for judgment notwithstanding the verdict. That ruling was overturned by the court of appeals in Williams v. Farmers Insurance Group, Inc., 720 P.2d 598 (Colo.App.1985), which remanded the case with instructions that a different judge review Farmers’ post-trial motions.1

A different trial court reinstated the jury verdicts, imposed interest, and awarded costs and attorney fees against the defendant insurers. The Colorado Court of Appeals affirmed, ruling that common-law bad faith remedies were not preempted by the No-Fault Act, and that the treble damages provision of the Act, section 10-4-708(1), was provable by a preponderance of the evidence rather than by a beyond a reasonable doubt standard. Williams v. Farmers Ins. Group, Inc., 781 P.2d at 159-60. Williams’ cross-appeal issues were not addressed.

We granted certiorari to review whether the No-Fault Act preempts tort claims against an automobile insurance company for bad faith breach of an insurance contract, whether willful and wanton conduct under section 10-4-708(1) must be proved beyond a reasonable doubt, and whether Williams as a cross-petitioner on certiorari was obligated to file a petition for rehearing in the court of appeals.2

[421]*421I

Farmers first argues that section 10-4-708(1) provides the exclusive remedy for an insured against the insurer for refusal to provide personal injury protection (PIP) benefits under the insurance contract.

Williams sought compensatory damages based on his assertion that Farmers had withheld his benefits in bad faith. In the context of insurance contracts, courts have established two standards of conduct by the insurer, depending on the type of bene-' fit the insured is seeking to enforce. When the benefit derives from the insurer’s duty to defend the insured against third-party actions, that relationship is characterized as a “third-party claim.” A “first-party claim,” on the other hand, results when the insured makes a claim against his insurer for benefits accruing directly from the insurance contract. See Klaus & Cahill, Colorado’s No-Fault Statute — Does It Bar Common Law Bad Faith Claims?, 17 Colo.Law. 449 (1988).

We first recognized the tort of bad faith breach of insurance contracts in a third-party situation in Farmers Group, Inc. v. Trimble, 691 P.2d 1138 (Colo.1984). In Trimble, we said, “Particularly when handling claims of third persons that are brought against the insured, an insurance company stands in a position similar to that of a fiduciary.” Id. at 1141. Because in a third-party claim the insurer retains the absolute right to control the defense of actions, we held that the standard applicable to establish the tort of bad faith is one of reasonableness. Id. at 1142.

In 1983, the court of appeals recognized a bad faith claim in a first-party situation. Rederscheid v. Comprecare, Inc., 667 P.2d 766 (Colo.App.1983). In Travelers Insurance Co. v. Savio, 706 P.2d 1258, 1273-74 (Colo.1985), we held that an employee could bring a first-party claim against his employer’s workers’ compensation insurance carrier for tortious bad faith breach of contract. We said, however, that because in the first-party situation the insured did not cede any right to represent his interests to the insurer, the insurer’s standard of care differed from an insurer in third-party circumstances. “[A] worker’s compensation claimant who asserts that an insurer has failed to pay a claim in bad faith must establish that the insurer acted unreasonably and with knowledge of or reckless disregard for the fact that no reasonable basis existed for denying the claim.” Id. at 1274 (emphasis added).

Savio rejected the insurer’s argument that the Workers’ Compensation Act afforded the employee his sole remedy and precluded common-law tort claims against insurance carriers. Id. at 1264-67. Although the Act provided exclusive remedies for injuries occurring while on the job, it did not provide remedies to the employee for the insurer’s bad faith refusal to pay claims. Id.3

In 1973, the Colorado Auto Accident Reparations Act, also referred to as the No-Fault Act, was adopted. §§ 10-4-701 to -723, 4A C.R.S. (1987 & 1990 Supp.). Unlike the Workers’ Compensation Act, Colorado’s No-Fault Act does provide remedies for the injured insured against an insurance carrier that, in bad faith, does not pay personal injury protection benefits. Section 10-4-708(1) provides:

In the event that the insurer fails to pay such benefits when due, the person entitled to such benefits may bring an action in contract to recover the same. In the event the insurer is required by such action to pay any overdue benefits, the insurer shall, in addition to the benefits paid, be required to pay the reasonable attorney fees incurred by the other party. The insurer shall pay interest on the benefits which were in controversy at a rate of eighteen percent per annum, with [422]*422interest commencing from the date the benefits in controversy were due. In addition, in the event of willful and wanton failure of the insurer to pay such benefits when due, the insurer shall pay to the other party, in addition to the other amounts due to the other party under this subsection (1), an amount which is three times the amount of unpaid benefits in controversy in the action.4

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Bluebook (online)
805 P.2d 419, 15 Brief Times Rptr. 130, 1991 Colo. LEXIS 44, 1991 WL 10856, Counsel Stack Legal Research, https://law.counselstack.com/opinion/farmers-group-inc-v-williams-colo-1991.