Colorado justices wary of upending process for settling insurance claims of injured parties

Members of the Colorado Supreme Court seemed hesitant last month to find that insurance companies act unreasonably if they do not immediately pay an injured claimant the minimum amount the insurer's internal analysis has calculated.

Under state law, insurers cannot unreasonably delay or deny payment on a claim. The Supreme Court, in a 2018 decision, previously clarified that auto insurers have an obligation to expeditiously pay the "undisputed portions" of an injured party's claim even if there are other parts in dispute.

In the case of Marcus A. Fear, who was rear-ended by a driver in Denver, a trial judge concluded GEICO had no reason to withhold money for Fear's noneconomic damages — like pain and suffering — when its own analysis showed a minimum and maximum amount the claim was worth. GEICO used the minimum figure when attempting to negotiate a settlement with Fear.

But during oral arguments on Oct. 22, multiple justices were concerned about the upshot of equating an insurer's minimum claim estimate with the type of "undisputed portion" of a claim that must be paid without delay.

"If you are right," Justice Richard L. Gabriel told Fear's attorney, "every insurance company would run their number as 'zero to X.' And then you're stuck with, 'I guess the undisputed number is zero.' That makes no sense."

Justice Melissa Hart raised a scenario in which an insurance company extends an initial settlement offer and the claimant sues for the payment and for the penalties that are imposed for unreasonable delay of benefits. Then when the insurer tries to settle the remainder of the claim, the claimant again sues for the minimum offer and for new penalties.

"Where does this end? How does this end?" she wondered. "A settlement negotiation can never happen because each offer is an 'undisputed' amount."

In Fear's case, he received neck, back and head injuries from the accident. The responsible driver's insurance company paid Fear $25,000, pursuant to the policy limits.

Fear then sought additional benefits from his own insurer, GEICO, arguing his injuries exceeded $25,000. Fear did not accept GEICO's settlement offers or negotiate. Instead, he sued GEICO for unreasonably delaying or denying the payment of benefits.

In 2021, District Court Judge Marie Avery Moses penalized GEICO for failing to pay Fear $3,961 on his claim, which the company's own evaluation found to represent the minimum amount Fear was owed. She relied on the Supreme Court's 2018 decision distinguishing between disputed and undisputed portions of claims. Moses also awarded Fear the penalty state law provides for unreasonable delay.

A three-judge panel of the Court of Appeals reversed the penalty, concluding Moses could not rely on the $3,961 figure that was generated internally during GEICO's efforts to settle Fear's claim. First, the analysis was "inextricably intertwined" with GEICO's settlement offer, and such offers are not to be used as evidence. Second, noneconomic damages are "inherently subjective."

"Internal evaluations like the one that GEICO completed in this case are not intended to confine the fact finder to a particular range of damages, or even to inform its decision-making process," wrote Judge Matthew D. Grove.

On appeal to the Supreme Court, some members were uneasy with the panel's suggestion that insurers' estimates of noneconomic damages are subjective and cannot be relied upon by judges or juries.

"My concern with the breadth of the Court of Appeals' opinion," said Chief Justice Monica M. Márquez, "is if noneconomic damages are inherently subjective — it's not possible to calculate them to some sort of precision — it sort of takes them off the table for any bad faith, unreasonable delay, or nonpayment claim. I worry about that."

Evan Stephenson, representing two insurance industry trade associations, said adopting Fear's position would reduce the incentive for settlements if insurers would open themselves up to a legal claim whenver they do not immediately pay their first offer because it is "undisputed."

DezaRae D. LaCrue, representing Fear, said that would only apply to amounts that are "truly undisputed." But right now, insurers "dispute every single penny of economic damages," she said.

"You seem to be conflating an agreement that there are noneconomic damages," observed Justice Carlos A. Samour Jr., "and the amount. There's a difference between those two and you're blurring that distinction. You're saying. 'Hey, as long as there's an agreement there are noneconomic damages, they have to pay something right off the bat or they're acting in bad faith."

The case is Fear v. GEICO Casualty Company.