Chapter 10 - § 10.1 • INSURER CANNOT BE LIABLE FOR BOTH NEGLIGENCE AND BAD FAITH

• Jurisdiction: Colorado

§ 10.1 • INSURER CANNOT BE LIABLE FOR BOTH NEGLIGENCE AND BAD FAITH

In insurance bad faith cases, plaintiffs often assert a multitude of claims against the defendant insurance company. In addition to breach of contract and bad faith, other claims often include claims for outrageous conduct, breach of fiduciary duty, and negligence. The issues of breach of fiduciary duty and outrageous conduct are discussed elsewhere in this book. This chapter addresses the question whether an insured may assert claims for both negligence and bad faith against an insurer for the same conduct.

In the context of a third-party claim, the Colorado Supreme Court addressed this issue in Farmers Group, Inc. v. Trimble, 691 P.2d 1138 (Colo. 1984) (Trimble II). In Farmers Group, Inc. v. Trimble, 658 P.2d 1370 (Colo. App. 1982) (Trimble I), the court of appeals held that Trimble's complaint stated claims for relief against Farmers under the theories of both negligence and bad faith. The court held that the trial court erred in dismissing both these claims. Moreover, the court in Trimble I held that a higher standard of proof was required for bad faith than for mere negligence. The court indicated that bad faith was characterized by intentional or willful conduct.

In Trimble II, on the other hand, the court refused to draw such a distinction between negligence and bad faith. It held that in a third-party setting, the standard of liability for bad faith is governed by "general principles of negligence." Trimble II, 691 P.2d at 1142. Because the standard of liability for negligence and bad faith is essentially the same, the court held that it was inappropriate for Trimble's pleadings to contain two separate and distinct claims for bad faith and negligence. Thus, in a third-party context, an insured may not sue an insurer for both negligence and bad faith because these claims are duplicative.

In Hiatt v. Schreiber, 599 F. Supp. 1142 (D. Colo. 1984), a first-party case, the court held that an insured cannot maintain claims against an insurer for both negligence and bad faith. In Hiatt, the plaintiffs had purchased a property insurance policy for their 1975 Mack Truck. The truck was damaged, but the insurers and their agents refused to settle the claim. The plaintiffs then sued for breach of contract, negligence, and breach of the duty of good faith dealing. The defendants moved for dismissal on the grounds that under Colorado law, no tort liability could be imposed for breach of an...