Bad Faith Claims and the Pip Statute: View of Plaintiff's Counsel
| Publication year | 1988 |
| Pages | 2163 |
| Citation | Vol. 17 No. 11 Pg. 2163 |
1988, November, Pg. 2163. Bad Faith Claims and the PIP Statute: View of Plaintiff's Counsel
Within the past year, the issue of whether the Colorado Auto Accident Reparations Act ("Act")(fn1), specifically CRS § 10-4-708(1) ("§ 708"), provides the exclusive remedy against insurers who wrongfully withhold personal protection ("PIP") benefits has become hotly debated.(fn2) Members of the plaintiffs' bar often claim that injured victims of automobile accidents are not receiving compensation for medical treatment as required by the Act. Plaintiffs' counsel attempt to assert actions in tort against insurance companies to force insurance companies to pay medical benefits. Such actions in tort include bad faith breach of contract, willful breach of contract, outrageous conduct and infliction of emotional distress. Insurance defense counsel generally respond that the Act only requires payment of "reasonable and necessary expenses" and that some of the services being provided to plaintiffs are neither reasonable nor necessary.(fn3) Further, defense counsel often argue that the remedies provided by § 708 are exclusive and bar any other kind of action against an insurer for nonpayment of PIP benefits.
This article discusses the separation between tort and contract claims and attempts to demonstrate that the injuries from tort claims should be considered distinct from injuries from contract claims.
Trial courts dealing with bad faith claims have divided along three rationales. One court's rationale is that § 708 provides a plaintiff's exclusive relief for non-payment of PIP benefits.(fn4) Other courts have held that the statute does not preclude the assertion of common law tort actions.(fn5) Finally, some courts have held:
as it relates to that issue, . . . [it] appears to be that if either the injury or the party's status falls outside the protection of the remedies provided for in the statute, then the statute does not foreclose a common law tort action seeking the noncovered remedy."(fn6)
The tort of bad faith breach of contract has only been recently recognized in Colorado. As early as 1970, the Colorado Court of Appeals held that an insurer owed a duty to an insured to ascertain the facts and law fully in evaluating a claim made by a third party against the insured.(fn7) However, the tort of bad faith breach of an insurance contract was not truly recognized in this state until 1982. In Farmers Group, Inc. v. Trimble, the Colorado Court of Appeals expressly allowed separate claims in tort and contract.(fn8) A year later, the court recognized that an insured could maintain a first party claim against an insurer for failing to deliver bargained-for services.(fn9) Then in 1984, again in Trimble, the Colorado Supreme Court further explained the tort of bad faith breach of an insurance contract.
The court declared that the tort of bad faith was grounded on the "special nature of the insurance contract and the relationship which exists between the insurer and the insured."(fn10) In fact, the relationship between an insurer and the insured was so special that the court referred to it as being "quasi-fiduciary" with the insurer standing in a position similar to that of a fiduciary.(fn11) With respect to mere nonpayment of benefits pursuant to the contract of insurance, the court declared that it was "the affirmative act of the insurer in unreasonably refusing to pay a claim and failing to act in good faith, and not the condition of nonpayment, that forms the basis for liability in tort."(fn12)
The Trimble decisions left no doubt in the minds of Colorado practitioners that an action for bad faith breach of an insurance contract had been recognized in Colorado.(fn13) In addition, it was clear that while the action was intimately connected with the insurance contract, it was independent of and separate from the contract---that is, a bad faith breach of contract was a tort and not a contract action. Finally, in 1985, the Colorado Supreme Court examined the tort of bad faith breach of contract in detail.
Travelers Insurance Company v. Savio(fn14) examined a breach of...
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