2
Certiorari to the Colorado Court of Appeals Court of Appeals
Case No. 21CA2023
Judgment
Affirmed
Attorneys for Petitioner: Franklin D. Azar & Associates,
P.C. DezaRae D. LaCrue Timothy L. Foster Aurora, Colorado
Attorneys for Respondent: Deisch, Marion & Klaus, P.C.
Gregory K. Falls Denver, Colorado
Attorneys for Amicus Curiae Chamber of Commerce of the United
States of America: Arnold & Porter Kaye Scholer LLP
Robert Reeves Anderson Brian M. Williams Jake W. Murphy
Denver, Colorado
Attorneys for Amici Curiae Colorado Civil Justice League,
American Property Casualty Insurance Association, and
National Association of Mutual Insurance Companies: Spencer
Fane LLP Evan Stephenson Hannah S. McCalla Denver, Colorado
Attorneys for Amicus Curiae Colorado Defense Lawyers
Association: Walberg Law, PLLC Wendelyn Walberg Morrison,
Colorado
Gordon
Rees Scully Mansukhani LLP Marilyn S. Chappell John R. Mann
Denver, Colorado
Attorneys for Amicus Curiae Colorado Trial Lawyers
Association: Western Slope Law Nelson A. Waneka Glenwood
Springs, Colorado
Jordan
Law Michael J. Rosenberg Greenwood Village, Colorado
3
JUSTICE GABRIEL delivered the Opinion of the Court, in which
CHIEF JUSTICE MÁRQUEZ, JUSTICE BOATRIGHT, JUSTICE
HOOD, JUSTICE HART, JUSTICE SAMOUR, and JUSTICE BERKENKOTTER
joined.
4
OPINION
GABRIEL JUSTICE
¶1
Petitioner Marcus A. Fear principally asks us to determine
whether it is reasonable as a matter of law for an
underinsured motorist ("UIM") insurer to refuse to
pay non-economic damages to an insured on the ground that
such damages are "inherently subjective" and, thus,
are always reasonably disputed until resolution of the
remainder of the insured's claims. In Fear's view,
under State Farm Mutual Automobile Insurance Co. v.
Fisher, 2018 CO 39, ¶ 3, 418 P.3d 501, 502,
respondent GEICO Casualty Company violated section 10-3-1115,
C.R.S. (2024), which prohibits an insurer from unreasonably
delaying or denying payment of a covered benefit, by failing
to pay undisputed non-economic damages before final
settlement. We also granted certiorari to decide whether an
insurer's internal settlement evaluation is admissible as
evidence of undisputed "benefits owed" under
Fisher.[1]
5
¶2
Because our analysis of the second issue informs our
consideration of the first, we begin with the second issue
and conclude that CRE 408 bars the admission of the kind of
claim evaluation at issue here to show an amount of
undisputed benefits owed. We further conclude, however, that
the evaluation may be admissible for other purposes,
including, for example, to establish an insurer's good or
bad faith.
¶3
Turning then to the first issue, we conclude that the court
of appeals division below erred in determining that it is
reasonable as a matter of law for an insurer to refuse to pay
non-economic damages (or any portion of alleged non-economic
damages) before resolving the rest of an insured's claim
because such damages are inherently subjective and therefore
are always subject to reasonable dispute under
Fisher. In our view, it is conceivable that
non-economic damages (or some portion of alleged non-economic
damages) could be undisputed (or not subject to reasonable
dispute) in a particular case, and in such a case, under
Fisher, an insurer would be required to pay those
damages without obtaining a release of an insured's
entire claim. Here, however, the sole evidence advanced by
Fear to demonstrate that a portion of his non-economic
damages was undisputed (or not reasonably disputed) consisted
of the claim evaluation itself, his expert's views
thereon, and his expert's interpretation of the claim
adjuster's not having expressly noted in the claim file
that she disputed any particular amount of Fear's claimed
6
non-economic damages. This evidence, however, amounts to
nothing more than an assertion that the claim evaluation
proves the amount of the allegedly undisputed non-economic
damages, which we have concluded is inappropriate under CRE
408.
¶4
Accordingly, we affirm the judgment of the division below,
albeit in part on different grounds.
I.
Facts and Procedural History
¶5
In 2018, Fear was involved in a rear-end collision for which
he was not at fault. As a result of the accident, he suffered
injuries and received medical treatment. At the time, Fear
held a UIM policy issued by GEICO. With GEICO's
permission, he settled with the tortfeasor's insurer for
the tortfeasor's policy limit of $25,000. He thereafter
sought compensation for additional damages through his UIM
policy with GEICO.
¶6
In April 2020, GEICO offered to settle Fear's UIM claim
for $2,500, in exchange for a release of any claims relating
to the accident. In June 2020, after Fear submitted
documentation of additional medical bills, GEICO extended a
new settlement offer of $4,004 to reflect the amount of those
bills. GEICO again requested a release in exchange for any
settlement. Fear did not accept either of these offers or
communicate a demand for any particular amount, and GEICO
ultimately did not make any partial payments to Fear. Fear
then filed suit against
7
GEICO alleging, as pertinent here, statutory bad faith under
section 10-3-1115 in the handling of his UIM claim.
¶7
The case proceeded to a bench trial during which experts
retained by each party disagreed about whether GEICO had
acted reasonably in its handling of Fear's claim. The
adjuster who had handled Fear's claim did not testify at
trial, and the district court declined to admit her
deposition testimony for purposes of proving the truth of any
matters asserted therein. The court allowed the parties'
experts, however, to rely on the adjuster's testimony as
a basis for their opinions. The court also admitted, pursuant
to the parties' stipulation of admissibility, GEICO's
claim file, which included a claim evaluation summary
prepared by GEICO in its handling of Fear's claim. This
evaluation designated $6,500 as a "reserve"; $2,500
as "evaluated" general damages (which both experts
referred to as non-economic damages); and $7,243-$12,239 as a
"negotiation range" for those general damages,
which, when combined with Fear's medical expenses and
then offset by the $25,000 that Fear had collected from the
tortfeasor's insurer, resulted in a final
"negotiation range" of $2,500-$9,000.
¶8
At trial, Fear's expert opined that GEICO did not dispute
the amount of $2,500 in April 2020 and the amount of $4,004
in June 2020. Accordingly, in his view, GEICO had acted
unreasonably in not paying at least those amounts. In support
of this opinion, Fear's expert testified that in his
experience, the $2,500 (or
8
later $4,004) amount in the evaluation represented the
minimum amount that GEICO would pay or expect to pay because,
in his view, that was the amount that GEICO believed the
claim to be worth. On this point, he observed that he had
seen evaluations that calculate damages as a negative number,
and, in his view, the inclusion of a particular amount in the
evaluation suggested, at a minimum, that GEICO did not
dispute that number. In addition, he noted that when an
insurance adjuster disputes a particular amount, the adjuster
ordinarily documents in the claim file notes why the adjuster
did so, and Fear's expert found no such note in
Fear's claim file. Finally, Fear's expert asserted
that although the adjuster's framing of her initial offer
as an offer of compromise could potentially signal that she
disputed the amount of non-economic damages, her deposition
testimony suggested that she perceived no such dispute.
Specifically, Fear's expert noted that the adjuster
testified in her deposition that the lower end of the range
in the evaluation represented the amount that GEICO would
consider due, thus indicating that the adjuster did not
dispute that amount.
¶9
GEICO's expert did not agree that either $2,500 or $4,004
represented an undisputed amount of non-economic damages. In
his view, non-economic damages are inherently disputed, and
neither the Fisher court nor any other court had
required that an insurer make partial payments of any alleged
non-economic damages. The expert further opined that an
insurer's evaluation as to
9
non-economic damages does not constitute an admission as to
the amount of those damages because it is a settlement
evaluation, not an objective evaluation of a claim. An
objective evaluation of a claim occurs, the expert asserted,
only when the parties agree to a value or a court or
arbitrator determines that value. And in the expert's
experience, the range for non-economic damages in an
evaluation is often based on settlement amounts in other
cases, as opposed to a mathematically precise calculation in
the present case.
¶10
At the conclusion of the bench trial, the district court
concluded that Fisher's holding extends to
undisputed non-economic damages. The court then found that
$3,961 of Fear's non-economic damages was undisputed (the
court arrived at this number by subtracting the $25,000 paid
by the tortfeasor's insurer from the $28,961 that the
court determined to be the undisputed total of Fear's
economic and non-economic damages). The court stated that in
reaching this conclusion, it had disregarded GEICO's
settlement offers and "settlement range," which the
court deemed to be distinct from the "evaluation
range" that the court found to be probative of
GEICO's understanding of the actual value of Fear's
claim. The court thus determined that GEICO had violated
section 10-3-1115.
¶11
GEICO appealed, and in a unanimous, published decision, a
division of the court of appeals reversed. Fear v. GEICO
Cas. Co., 2023 COA 31, ¶¶ 2, 23, 532 P.3d 382,
383, 387. The division concluded that, for two reasons, the
district court had
10
erred in relying on GEICO's claim evaluation as evidence
of an amount of undisputed benefits owed. Id. at
¶ 18, 532 P.3d at 386. First, in the division's
view, non-economic damages are "inherently
subjective," and insurers estimate them in internal
evaluations for the limited purpose of determining reserves
and settlement authority, not to confine the factfinder to a
particular damages range. Id. at ¶ 19, 532 P.3d
at 386. Second, the division opined that admitting the claim
evaluation as evidence of an amount of undisputed damages
would violate CRE 408 because, although the evaluation itself
was not a settlement offer, it was "inextricably
intertwined" with such an offer, thus explaining why the
settlement offer matched the internal evaluation range
exactly. Id. at ¶ 20, 532 P.3d at 386. On this
point, the division noted that it would be absurd to protect
the end result of the insurer's initial evaluation
process (i.e., a settlement offer) without also protecting
the assessments that gave rise to that offer. Id.
¶12
In reaching its conclusion, the division was unpersuaded by
dicta in Sunahara v. State Farm Mutual Automobile
Insurance Co., 2012 CO 30M, ¶ 29, 280 P.3d 649,
657, that stated that the kind of evaluation at issue could
be relevant in a bad faith action to indicate whether the
insurer had adjusted a claim in good faith. Fear,
¶ 21, 532 P.3d at 387. In the division's view,
because the evaluation could not show an amount of undisputed
benefits owed, it could have no relevance to whether the
insurer unreasonably delayed payment of a covered
11
benefit. Id. And because the district court's
ruling depended heavily on the claim evaluation, the error in
admitting that evaluation was not harmless. Id. at
¶ 22, 532 P.3d at 387.
¶13
Fear then petitioned this court for a writ of certiorari, and
we granted his petition.
II.
Analysis
¶14
We begin by setting forth the applicable standard of review.
Because our analysis of the second issue on which we granted
certiorari informs our consideration of the first, we then
address the second issue before proceeding to the first.
A.
Standard of Review
¶15
We review a trial court's factual findings for clear
error and its legal conclusions de novo. Martinez v.
People, 2024 CO 6M, ¶ 24, 542 P.3d 675, 681. The
reasonableness of an insurer's conduct must be determined
objectively, based on industry standards. Goodson v. Am.
Standard Ins. Co. of Wis., 89 P.3d 409, 415 (Colo.
2004). What constitutes reasonableness under the
circumstances of a given case is generally a factual question
for the jury. Zolman v. Pinnacol Assurance, 261 P.3d
490, 497 (Colo.App. 2011). When, however, no genuine issue of
material fact exists, the question of reasonableness may be
decided as a matter of law. Id.
12
B.
Admissibility of the Claim Evaluation
¶16
Fear contends that the division erred in concluding that CRE
408 precludes admission of the claim evaluation here to show
both undisputed benefits owed and good or bad faith. We agree
with the division that CRE 408 bars the admission of the
claim evaluation to show undisputed benefits owed, but we do
not agree with the division's further conclusion that, as
a matter of law, CRE 408 also bars the admission of the claim
evaluation to show an insurer's good or bad faith.
¶17
CRE 408 provides, in pertinent part:
(a) Prohibited Uses. Evidence of the following is not
admissible on behalf of any party, when offered to prove
liability for, invalidity of, or amount of a claim that was
disputed as to validity or amount . . .:
(1) furnishing or offering or promising to furnish accepting
or offering or promising to accept a valuable consideration
in compromising or attempting to compromise the claim; and
(2) conduct or statements made in compromise negotiations
regarding the claim ....
(b) Permitted Uses. This rule does not require exclusion if
the evidence is offered for purposes not prohibited by
subdivision (a). Examples of permissible purposes include
proving a witness's bias or prejudice; negating a
contention of undue delay; and proving an effort to
obstruct a criminal investigation or prosecution.
(Emphasis added.)
¶18
We have previously analyzed whether reserves, settlement
authority, and internal evaluations like the claim evaluation
at issue here are discoverable, and
13
we believe that the reasoning of those decisions sheds light
on the admissibility question now before us.
¶19
In Silva v. Basin Western, Inc., 47 P.3d 1184, 1193
(Colo. 2002), we concluded that in a first-party claim
between an insured and their insurer, the establishment of
reserves and settlement authority could be relevant and
discoverable as to whether an insurer adjusted a claim in
good faith or properly investigated, assessed, or settled a
claim. We noted, however, that reserves and settlement
authority are less likely to be discoverable in third-party
actions. Id. In reaching this conclusion, we
observed that reserves, which we defined as funds an insurer
sets aside to cover future expenses, losses, claims, or
liabilities, should not be equated with an admission or
valuation by the insurer. Id. at 1189. This is
because insurers are statutorily required to maintain
reserves to assure the insurer's ability to satisfy its
possible obligations under its policies. Id.
Specifically, insurers are required to make a reasonable
estimate of the amount necessary to pay losses and claims for
which the insurer may be liable. Id. Reserves must
also account for any claim expenses, including attorney fees
and court costs. Id.
¶20
Turning then to the question of an insurer's settlement
authority, we concluded that such authority, like reserves,
also cannot be equated with the value of a claim because
settlement authority generally refers to an agent's
ability to accept a settlement offer that binds the insurer
up to and including a particular
14
amount. Id. In light of the foregoing, we concluded,
"Neither reserves nor settlement authority reflect an
admission by the insurance company that a claim is worth a
particular amount of money." Id. at 1190.
Rather, "[s]tatutory requirements, limitations in the
evaluation, and bargaining tactics limit the usefulness of
reserves and settlement authority as valuations of a
claim." Id.
¶21
Subsequently, in Sunahara, ¶ 25, 280 P.3d at
657, we extended our reasoning in Silva to cover
liability assessments and "similar cursory fault
evaluations" used by insurers to develop reserves and
settlement authority. There, we agreed with the trial court
that insurance companies must be free to make internal
assessments that bear on the insurer's reserve decisions.
Id. We further agreed with the trial court that
"it would be absurd to protect the end result of the
insurance company's initial evaluation process-the
reserves and settlement authority-without also protecting the
assessments that led to those numbers." Id.
Accordingly, we concluded that these evaluations, like the
reserves and settlement authority that they underlie, were
not discoverable. Id. We again added, however, that
reserves and settlement authority might be discoverable when
a first-party plaintiff sues an insurance company for bad
faith or declaratory relief. Id. at ¶ 29, 280
P.3d at 657.
¶22
In our view, the same reasoning that protected the claim
evaluations from discovery in Silva and
Sunahara applies to the admissibility of those
evaluations. As noted above, CRE 408(a) bars the admission of
settlement offers as proof of the
15
amount of a disputed claim. Although the rule does not refer
to the evaluations underlying a party's settlement
offers, for the reasons set forth in Silva and
Sunahara, because these evaluations often underlie
the determination of a party's settlement offers,
allowing their admission would circumvent the rule's bar
on the admission of settlement offers to prove the amount of
a disputed claim, thus undermining the rule in many insurance
cases. Stated otherwise, in the same way that it would be
absurd to bar the discovery of reserves and settlement
authority but not the evaluations that led to them,
Sunahara, ¶ 25, 280 P.3d at 657, it would be
absurd to bar the admission of settlement offers proffered to
establish the amount of a disputed claim but not the
evaluations from which those settlement offers were
developed.
¶23
Accordingly, we agree with the conclusion of the division
below that an insurer's internal settlement evaluation is
inadmissible as evidence of undisputed benefits owed.
Consistent with our reasoning in both Silva and
Sunahara, however, and contrary to the
division's determination below, Fear, ¶ 21,
532 P.3d at 387, we further conclude that CRE 408 does not
prohibit the use of documents like the claim evaluation at
issue here for purposes not prohibited by CRE 408(a). Indeed,
CRE 408(b) expressly includes as an example of a permitted
use of such evidence "negating a contention of undue
delay," which is an essential issue in a statutory bad
faith claim.
16
¶24
Because the district court admitted the claim evaluation for
a prohibited purpose, we agree with the division below that
that decision must be reversed.
C.
Non-Economic Damages Under Fisher
¶25
Having thus concluded that the district court erred in
admitting the claim evaluation, we proceed to consider
Fear's assertion that the division erred in concluding,
as a matter of law, that a UIM carrier acts reasonably in not
advancing non-economic damages because such damages are
inherently subjective. According to Fear, Fisher
requires that insurers pay undisputed damages and not
condition that payment on a release covering the claim in its
entirety. Fear further asserts that although non-economic
damages may be more difficult to quantify than economic
damages, some amount of non-economic damages may be
undisputed in a given case.
¶26
We agree with Fear that the division below erred in
determining that it is reasonable as a matter of law for an
insurer to refuse to pay non-economic damages (or any portion
of alleged non-economic damages) before resolving the rest of
an insured's claim because such damages are inherently
subjective and therefore are always subject to reasonable
dispute under Fisher. We nonetheless conclude that
the division reached the correct result on the facts of this
case.
¶27
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
17
owed to or on behalf of any first-party claimant."
Section 10-3-1115(2) adds that "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." And section 10-3-1116(1), C.R.S.
(2024), in turn, authorizes first-party claimants who have
had their insurers unreasonably delay or deny payment of
benefits to bring an action to recover reasonable attorney
fees, court costs, and two times the covered benefit.
¶28
We recently construed these provisions in Fisher.
There, the insurer conceded that the claimant's medical
bills were reasonable, necessary, and causally related to the
accident at issue but refused to pay those medical bills
while the parties disputed the remainder of Fisher's
claim. Fisher, ¶¶ 6-7, 418 P.3d at 503.
Because section 10-3-1115 refers to the unreasonable delay or
denial of payment of a "covered benefit," as
opposed to an entire claim, we concluded that the statute
required the insurer to pay the covered benefit (there, the
undisputed medical expenses), even while other portions of
the insured's claim remained reasonably in dispute.
Id. at ¶¶ 3, 15-22, 418 P.3d at 502,
504-05.
¶29
To decide the issue now before us, we must first determine
whether Fisher, which, as noted, involved undisputed
medical expenses, applies as well to undisputed non-economic
damages. Contrary to the reasoning of the division below,
see Fear, ¶¶ 18-22, 532 P.3d at 386-87, we
conclude that it does, although
18
we recognize that the difficulties and subjectivity involved
in calculating non-economic damages may impact whether the
non-economic damages in a given case are undisputed or
reasonably disputable. We reach this conclusion for two
reasons.
¶30
First, Fisher's reasoning extends beyond only
medical expenses. Specifically, section 10-3-1115 applies to
any "covered benefit," which, as we reasoned in
Fisher, ¶¶ 16-22, 418 P.3d at 504-05, can
be a component of an insurance bad faith claim, as opposed to
the entire claim itself. Moreover, many insurance policies,
including the UIM policy at issue here, cover non-economic
damages. In such cases, non-economic damages constitute a
covered benefit, and, thus, Fisher's reasoning
applies to such damages.
¶31
Second, Fisher's reasoning extends beyond those
expenses that an insurer explicitly concedes as
undisputed. As noted above, section 10-3-1115 prohibits an
insurer from delaying or denying payment of a covered benefit
"without a reasonable basis." In determining
whether an insurer acted reasonably, then, courts must
consider, among other things, whether a reasonable person
would find that the insurer's justification for delaying
or denying payment was "fairly debatable."
Schultz v. GEICO Cas. Co., 2018 CO 87, ¶ 20,
429 P.3d 844, 848 (clarifying, however, that fair
debatability is neither an outcome-determinative threshold
inquiry nor the beginning and end of the analysis in a bad
faith case).
19
Furthermore,
although a genuine difference of opinion regarding the value
of an insurance claim may weigh against a finding of bad
faith, a valuation dispute alone does not render a claim
fairly debatable because virtually every lawsuit involving
insurance coverage constitutes a valuation dispute, at least
to the extent that the parties disagree about how much should
be paid under a policy. Vaccaro v. Am. Fam. Ins.
Grp., 2012 COA 9M, ¶ 47, 275 P.3d 750, 760.
Accordingly, insurers may not shield themselves from
liability simply by disputing the value of a particular
benefit; the dispute must have a reasonable basis.
¶32
Applying these principles to the question before us, we
conclude that circumstances may exist in which section
10-3-1115 requires an insurer to pay some or all of an
insured's alleged non-economic damages prior to final
resolution of a claim. Although, as GEICO argues,
non-economic damages tend to involve greater subjectivity
than other types of damages like medical expenses and, as a
result, it may well be a rare case in which non-economic
damages are not reasonably disputable, we decline to
conclude, as a matter of law, that such damages (or a portion
thereof) can never be undisputed or free from
reasonable dispute such that Fisher would require an
insurer to pay them.
¶33
The question thus becomes whether Fear has proffered any
admissible evidence to support his claim that some portion of
his claimed non-economic
20
damages were either undisputed or not subject to reasonable
dispute in this case. We conclude that he has not done so.
¶34
As noted above, the sole evidence advanced by Fear to
demonstrate that his claim for non-economic damages (or a
portion of that claim) was either undisputed or not subject
to reasonable dispute consisted of the claim evaluation
itself, his expert's opinion as to what the numbers in
that evaluation meant (relying, in part, on the
adjuster's deposition testimony as to her understanding
of the evaluation), and the expert's interpretation of
the adjuster's not having expressly noted in the claim
file that she disputed any particular amount of Fear's
claimed non-economic damages. In our view, however, this
evidence amounts to nothing more than an assertion that the
claim evaluation proves the amount of the allegedly
undisputed non-economic damages, which is precisely what we
have determined is inappropriate under CRE 408.
¶35
Accordingly, we conclude that although the division below
erred in determining that it is reasonable as a matter of law
for an insurer to refuse to pay non-economic damages (or any
portion of alleged non-economic damages) under
Fisher, it nonetheless reached the correct result
because Fear has not carried his burden of establishing,
through admissible evidence, that any portion of his alleged
non-economic damages was either undisputed or not subject to
reasonable dispute.
21
III.
Conclusion
¶36
For these reasons, we conclude that CRE 408 bars the
admission of the kind of claim evaluation at issue here as
evidence of the amount of undisputed benefits owed, but such
a claim evaluation may be admissible for other purposes,
including to seek to establish an insurer's good or bad
faith. We further conclude that Fisher and section
10-3-1115 require an insurer to pay non-economic damages (or
a portion thereof) prior to resolving the rest of an
insured's claim when such damages are undisputed or not
subject to reasonable dispute. Here, however, Fear has not
carried his burden of establishing, through admissible
evidence, that any portion of his claimed non-economic
damages was either undisputed or not subject to reasonable
dispute.
¶37
Accordingly, we affirm the judgment of the division below,
albeit in part on different grounds.
---------
Notes:
[1] Specifically, we granted certiorari to
review the following issues:
1. Whether it is reasonable as a matter of law for an
uninsured/underinsured motorist ("UIM") insurance
carrier to refuse to pay non-economic damages because such
damages are "inherently subjective" and because the
insurer attempted to negotiate a full and final settlement of
the insured's claim.
2. Whether an insurer's internal settlement
evaluation is admissible as evidence of undisputed
"benefits owed" under State Farm Mutual Auto
Ins. Co. v. Fisher, 2018 CO 39, 418 P.3d 501.