Cary v. United of Omaha Life Ins. Co.

• Decision Date: 30 August 2001
• Docket Number: No. 00CA0681.,00CA0681.
• Citation: 43 P.3d 655
• Parties: Thomas A. CARY and Beth Hanna, individually and on behalf of their minor daughter, Dena Cary, Plaintiffs-Appellants and Cross-Appellees, v. UNITED OF OMAHA LIFE INSURANCE COMPANY and Mutual of Omaha of Colorado, Inc., d/b/a Antero Health Plans, Defendants-Appellees and Cross-Appellants.
• Court: Colorado Court of Appeals

43 P.3d 655

Thomas A. CARY and Beth Hanna, individually and on behalf of their minor daughter, Dena Cary, Plaintiffs-Appellants and Cross-Appellees,
v.
UNITED OF OMAHA LIFE INSURANCE COMPANY and Mutual of Omaha of Colorado, Inc., d/b/a Antero Health Plans, Defendants-Appellees and Cross-Appellants

No. 00CA0681.

Colorado Court of Appeals, Div. I.

August 30, 2001.

Certiorari Granted April 8, 2002.

Wilcox & Ogden, P.C., M. Anne Wilcox, Ralph Ogden, Denver, CO, for Plaintiffs-Appellants and Cross-Appellees.

Kutak Rock, LLP, Melvin B. Sabey, Gerard V. Reardon, Denver, CO, for Defendant-Appellee and Cross-Appellant United of Omaha Life Insurance Company.

Kennedy & Christopher, P.C., John R. Mann, Christopher K. Miller, Denver, CO, for Defendant-Appellee and Cross-Appellant Mutual of Omaha of Colorado, Inc.

43 P.3d 656

Opinion by Judge ROY

Plaintiffs, Thomas A. Cary (Cary) and Beth Hanna, individually and on behalf of their minor daughter, Dena Cary, appeal the entry of summary judgment in favor of defendants, United of Omaha Life Insurance Company (United) and Mutual of Omaha of Colorado, Inc., d/b/a Antero Health Plans (Antero). We affirm and do not address the cross-appeals of United and Antero.

43 P.3d 657

Thomas Cary was an employee of the City of Arvada and participated in the city's self-funded Medical and Disability Program Health Care Plan, which was administered by the Arvada Medical & Disability Program Trust. The daughter was Cary's minor dependent and a beneficiary under the plan

The trust contracted with United for third-party administrator services. United then subcontracted with Antero, its wholly-owned subsidiary, to assist it in performing various claim processing duties under its contract with the trust.

The daughter sustained a serious self-inflicted wound, which required extended treatment, hospitalization, and surgery. United denied coverage for the daughter's injury based upon the plan's self-inflicted injury exclusion.

After exhausting all administrative appeals, plaintiffs filed this action for a judicial declaration that the daughter's injury was covered under the plan and for damages for breach and bad faith breach of an insurance contract against the city, the trust, United, and Antero.

On cross-motions for summary judgment, the trial court ruled that the self-inflicted injury exclusion was ambiguous and had to be construed in favor of coverage. The court granted summary judgment in favor of plaintiffs on their declaratory judgment and breach of contract claims. The trial court found the city and the trust liable for the daughter's medical expenses under the plan.

Finally, the trial court dismissed plaintiffs' bad faith breach of insurance contract claim against United and Antero because there was no contractual relationship between Cary and United or Antero. Following this ruling, plaintiffs settled their claims against the city and the trust, and they are not parties to this appeal.

I.

Plaintiffs first contend that the trial court erred in granting summary judgment in favor of United and Antero. They argue that third-party administrators stand in the shoes of the insurance carriers when they process claims and assume all the duties the carriers owe their insureds, and therefore can be held liable for bad faith breach of an insurance contract. We disagree.

Summary judgment is a drastic remedy and should only be granted when it is established that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Hyden v. Farmers Insurance Exchange, 20 P.3d 1222 (Colo.App.2000). An order granting summary judgment is subject to de novo review. Aspen Wilderness Workshop, Inc. v. Colorado Water Conservation Board, 901 P.2d 1251 (Colo.1995).

An insurance contract contains an implied covenant of good faith and fair dealing, and pursuant to this covenant, the conduct of the insurer when processing claims must reflect the quasi-fiduciary relationship that exists between the insurer and the insured by virtue of the insurance contract. The basis for breach of the duty of good faith and fair dealing is the special nature of the insurance contract and the relationship between the insurer and insured. Farmers Group, Inc. v. Trimble, 691 P.2d 1138 (Colo. 1984); see also Gruenberg v. Aetna Insurance Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973).

In Travelers Insurance Co. v. Savio, 706 P.2d 1258 (Colo.1985), the supreme court held that a workers' compensation insurance carrier could be held liable for bad faith breach of an insurance contract, even absent a direct contract with the injured employee, because the insurance contract was subject to the Workers' Compensation Act. That act provides, "Every contract insuring against liability for [workers'] compensation or insurance policy evidencing the same shall contain a clause to the effect that the insurance carrier shall be directly and primarily liable to the employee...." Section 8-44-105, C.R.S.2000; see also State Compensation Insurance Fund v. Wilson, 736 P.2d 33 (Colo. 1987).

Plaintiffs rely on Scott Wetzel Services, Inc. v. Johnson, 821 P.2d 804 (Colo.1991), also a workers' compensation case involving a self-insured employer that, as here, employed

43 P.3d 658

a third-party administrator. The court there stated

[T]he duty of

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