Chapter 10 - § 10.12 • INSURED'S FAILURE TO COOPERATE AS DEFENSE TO BAD FAITH CLAIMS

• Jurisdiction: Colorado

§ 10.12 • INSURED'S FAILURE TO COOPERATE AS DEFENSE TO BAD FAITH CLAIMS

Cribari v. Allstate Fire & Casualty Insurance Co., 375 F. Supp. 3d 1189 (D. Colo. 2019), was an insurance coverage dispute arising out of the plaintiff's claim for underinsured motorist (UIM) benefits. The plaintiff brought claims against Allstate, her automobile insurer, for breach of contract, common law bad faith, and statutory bad faith under C.R.S. §§ 10-3-1115 and -1116. The plaintiff injured her wrist in a February 2015 accident, necessitating more than one surgery. She settled with the at-fault driver for his insurance limits of $100,000 and then sought UIM benefits. The plaintiff filed suit against Allstate on August 29, 2016. On February 25, 2019, Allstate tendered payment to the plaintiff and her counsel in the form of a check for the full UIM coverage limit of $250,000. The check was accompanied by a letter purporting to reserve all of Allstate's rights based upon a policy defense of failure to cooperate. Allstate also reserved the right to recoup its payment if the jury were to find that the plaintiff had breached the contract by failing to cooperate with its investigation of the claim. The case came before the court on the parties' cross motions for summary judgment, which the court denied.

The plaintiff argued that by paying the full policy limit, Allstate had waived its failure to cooperate defense, which had been rendered moot. She asserted that Colorado law does not allow an insurer to tender payment of UIM benefits subject to a reservation of rights to recoup the benefits later. The plaintiff also complained that Allstate's payment was not a payment at all since Allstate could seek to recoup the money in the future. In response, Allstate cited Auto-Owners Insurance Co. v. Summit Park Townhome Ass'n, 2016 U.S. Dist. LEXIS 45978, 2016 WL 1321507 (D. Colo. April 5, 2016), as support for its position that an insurer can make a payment and simultaneously reserve a right of recoupment. 375 F. Supp. 3d at 1194.

Despite reservations, the court agreed with Allstate's position. The court noted that an argument can be made that if an insurer makes a payment to an insured and simultaneously reserves the right to recoup the funds, "the insurer provides no benefit at all to the insured . . . and merely exacerbates the uncertainty and distress associated with not getting paid in a timely way on the claim." Id. at 1195. The court commented that "[t]his maneuver may provide...