Expert Commentary

An Adjuster Is Not a Party to an Insurance Contract

The Supreme Court of Colorado was asked to answer a certified question of law from the US District Court for the District of Colorado regarding the potential liability of insurance adjusters under sections 10–3–1115 to –1116, C.R.S. (2021) of Colorado's statutes.


Claims Practices
April 2022

Specifically, the certified question asks whether an employee of an insurance company who adjusts an insured's claim in the course of employment may, for that reason, be liable personally for statutory bad faith under Colorado Revised Statutes sections 10–3–1115 and –1116 ("Statutes").

In Alexis Skillett v. Allstate Fire & Cas. Ins. Co., d/b/a Allstate Ins. Co. & Collin Draine, No. 21SA187, 2022 CO 12 (Colo. Mar. 14, 2022), en banc, the Colorado Supreme Court decided that an action for unreasonably delayed or denied insurance benefits under Colorado law may be brought against an insurer and not against an individual adjuster acting solely as an employee of the insurer.

Facts of the Case

On July 3, 2020, Alexis Skillett was involved in a car accident. At the time of the accident, Allstate Fire and Casualty Insurance insured Skillett under a policy that included underinsured motorist (UIM) coverage. Skillett settled with the at-fault driver and his insurer and also filed a claim with Allstate for UIM benefits.

Allstate assigned one of its employees, Collin Draine, to handle Skillett's claim. Draine was not a party to the insurance contract between Skillett and Allstate, and he handled Skillett's claim solely in his capacity as an Allstate claims adjuster. He concluded that Skillett was not entitled to UIM benefits. Accordingly, Allstate denied Skillett those benefits.

Skillett filed suit in Denver District Court, naming both Allstate and Draine as defendants. Her claims against Allstate included breach of contract, statutory bad faith, and common law bad faith.

Draine and Skillett were both Colorado residents, which ordinarily requires that the case remains in state court because federal courts lack jurisdiction over most exclusively state law claims. Allstate removed the case to federal court, arguing that Draine had been fraudulently joined to thwart diversity jurisdiction and that the federal court did, in fact, have jurisdiction.

The federal district court determined that Allstate raised an important, unsettled question of Colorado law, and it certified that question to the supreme court.

Analysis of the Case

In 2008, the General Assembly enacted "An Act Concerning Strengthening Penalties for the Unreasonable Conduct of an Insurance Carrier." Ch. 422, sec. 5, §§ 10–3–1115 to –1116, 2008 Colo. Sess. Laws 2171, 2172–74. The law created, inter alia, two new provisions: (1) section 10–3–1115, which prohibits the unreasonable delay or denial of payment for a claim for insurance benefits, and (2) section 10–3–1116(1), which establishes a cause of action for an insured whose claim for insurance benefits has been unreasonably delayed or denied.

A person engaged in the business of insurance shall not unreasonably delay or deny payment of a claim for benefits owed to or on behalf of any first-party claimant.

Skillett argued that these provisions allowed first-party claimants to bring suit not only against their insurers but also against individual insurance adjusters. Although the court of appeals had previously rejected this argument, a federal court recently accepted it, leaving uncertainty for both state and federal courts as to the proper interpretation of the Statutes.

In resolving that uncertainty, the court ruled that Skillett was correct that section 10–3–1102(3) includes "adjusters" among "persons." But that section does not make its definitions absolute. Most importantly, for the purposes of an action brought pursuant to this section and section 10–3–1116, "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." [Emphases added.]

Reading these provisions to allow for adjuster liability leaves unnecessary statutory gaps. Because the insurer—not any individual employee—authorizes payment, this language indicates that an action for unreasonable delay or denial of insurance benefits is triggered by a decision of the insurer and not the adjuster.

Insurers and insureds—not adjusters—are the parties to an insurance policy. They are the ones who undertake obligations under such policies, and it is the insurer—not the adjuster—who may be obligated to pay insurance benefits. And section 10–3–1116(1) allows first-party claimants whose claims for benefits are unreasonably delayed or denied to recover "reasonable attorney fees and court costs and two times the covered benefit." It would seem odd to allow an insured to recover two times the covered benefit from an adjuster, who is not a party to the insurance policy that establishes the covered benefit and has not otherwise undertaken any obligation to pay the covered benefit.

The court said the only language in the Statutes that supported Skillett's argument was the use of the word "person" in section 10–3–1115(1)(a) and the attendant inclusion of "adjusters" as "persons" in section 10–3–1102(3). Given the statutory command that the definitions included in section 10–3–1102 only apply "unless the context otherwise requires," the Colorado Supreme Court concluded that individual adjusters are not personally subject to suit under the Statutes.

The Colorado Supreme Court concluded that an action for unreasonably delayed or denied insurance benefits proceeds against an insurer and not an individual adjuster. The plain language of sections 10–3–1115 and 10–3–1116 required the result, and the certified question was answered in the negative.

Conclusion

In the 1970s, lawyers in California, unhappy with the result of insurance bad faith cases in the federal courts, decided to sue adjusters and attorneys representing insurers as individual defendants to destroy jurisdiction in federal courts for lack of diversity. I was personally sued dozens of times where the plaintiffs alleged that, when I sold them an insurance policy, I promised them coverage. I am not now, nor have I ever been, an insurer or insurer's salesperson. I would file motions for summary judgment and win every time but would have to pay my lawyers and deductibles and lost my insurance coverage.

In Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 108 Cal. Rptr. 480, 510 P.2d 1032 (1973), the California Supreme Court made it clear, as the Colorado Supreme Court has now concluded, that the adjuster and lawyer defendants were not subject to the implied duty arising from the contractual relationship since they were not parties to the contract of insurance. The suits continued and caused hardship for adjusters, claims managers, and insurance lawyers for years until they finally stopped. The same attempt was made in the state of Washington until it was stopped by the Washington Supreme Court.


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