Dale v. Guaranty Nat. Ins. Co.

Citation948 P.2d 545
Decision Date24 November 1997
Docket NumberNo. 96SC381,96SC381
Parties97 CJ C.A.R. 2886 Linda DALE, Petitioner, v. GUARANTY NATIONAL INSURANCE COMPANY, Respondent.
CourtSupreme Court of Colorado

Melat, Pressman, Ezell & Higbie, Alan Higbie, Colorado Springs, for Petitioner.

Nathan, Bremer, Dumm & Myers, P.C., Ellis J. Mayer, Denver, for Respondent.

Justice MULLARKEY delivered the Opinion of the Court.

We granted certiorari to review an unpublished court of appeals' decision rejecting the appeal of petitioner Linda Dale (Dale) and affirming the trial court's grant of summary judgment in favor of respondent, Guaranty National Insurance Company (GNIC), on Dale's claim of bad faith breach of an insurance contract. 1 The court of appeals affirmed the trial court's holding that the doctrine of collateral estoppel applied to an arbitration panel's determination that GNIC's misconduct was not willful and wanton and, as a result, precluded further litigation on the issue of bad faith. We reverse and clarify the relationship between the contract claim of willful and wanton misconduct by an insurance company under section 10-4-708, 4A C.R.S. (1987 & 1990 Supp.), and the tort claim of insurance bad faith.

I.

GNIC insured Dale for automobile coverage. Through no fault of Dale's, she and her children were injured in a car accident on August 19, 1987. Dale went to numerous health care providers, including a GNIC-required physician who in turn referred Dale to additional health care providers.

GNIC refused to pay bills totaling over $8,000 from these health care providers because GNIC concluded that Dale had reached "maximum medical improvement." Dale asserts that the unpaid providers refused to provide further services and she could not secure medical treatment for a period of more than twelve months until after she prevailed in the mandatory arbitration proceeding.

On June 29, 1990, Dale filed a demand for arbitration under section 10-4-708 which at that time required that insurance claimants submit to binding arbitration. 2 Dale also filed suit against GNIC in El Paso County District Court on June 18, 1991. Dale's complaint alleged outrageous conduct; bad faith breach of insurance contract and resulting damages including aggravation of physical condition; and noneconomic damages. Dale additionally alleged GNIC acted with willful and wanton intent with regard to the alleged tortious activities, entitling Dale to punitive damages.

The arbitration took place on November 14, 1991, and the panel awarded Dale $8,627.12, finding GNIC's failure to pay health care providers was wrongful but not willful and wanton. After approximately one month, GNIC sent a check made payable to Dale, her attorney, and seven health care providers (nine-party check). Because Dale had difficulty in gathering the necessary signatures to cash the check, she returned the check to GNIC and eventually received payment in another form. Dale was able to resume her medical treatment only after a fourteen month hiatus caused by GNIC's nonpayment. According to medical testimony, Dale developed an aggravated condition, reflex sympathetic dystrophy, and her prognosis worsened because her injuries were not treated during the interim when GNIC refused payment.

GNIC filed a motion for partial summary judgment in the district court suit, contending that the arbitration panel's finding that GNIC did not engage in willful and wanton conduct precluded Dale's bad faith claim. Dale opposed the motion with deposition excerpts and affidavits, including an affidavit from an insurance expert stating that GNIC's post-arbitration conduct constituted harassment and further delayed her right to recovery. The trial court granted summary judgment on the bad faith claim, concluding that willful and wanton conduct is synonymous with bad faith conduct, and consequently, the determination of the arbitration panel precluded Dale's bad faith claim. With regard to Dale's bad faith claim concerning GNIC's conduct after the arbitration, the trial court ruled that the issuance of the nine-party check was not probative of bad faith and excluded the evidence. The court of appeals affirmed the trial court's ruling that Dale's bad faith claim was collaterally estopped, and stated that the trial court did not abuse its discretion in ruling that evidence of the nine-party check was irrelevant.

II.
A.

Dale argues that the arbitration panel's decision should not be given issue preclusive effect because the mandatory arbitration under the No-Fault Act is a special statutory proceeding designed for limited and speedy determination which does not allow for broad judicial review. We reject this argument.

At the time Dale filed her demand for arbitration, the Colorado Auto Accident Reparations Act, also known as the No-Fault Act, sections 10-4-701 to -721, 4A C.R.S. (1987 & 1990 Supp.), required arbitration. See § 10-4-708(1.5), 4A C.R.S. (1990 Supp.). Section 10-4-708 then read:

Prompt payment of direct benefits. (1) Payment of benefits ... shall be made on a monthly basis. Benefits for any period are overdue if not paid within thirty days after the insurer receives reasonable proof of the fact and amount of expenses incurred during that period.... In the event that the insurer fails to pay such benefits when due, the person entitled to such benefits may bring an action in contract to recover the same.

(1.5) Any action for breach of contract brought pursuant to subsection (1) of this section shall proceed to binding arbitration pursuant to the following provisions:

....

(d) ... In the event the insurer is required by such arbitration to pay any overdue benefits, the insurer shall, in addition to the benefits paid, be required to pay the reasonable attorney fees and compensation of the arbitrator or arbitrators and all other costs and fees of the arbitration incurred by the person entitled to such benefits.... [I]n the event of willful and wanton failure of the insurer to pay such benefits when due, the insurer shall pay to the other party, in addition to any other amount due to the other party under this subsection (1.5), an amount which is three times the amount of unpaid benefits in controversy in the action.

§§ 10-4-708(1), (1.5)(d), 4A C.R.S. (1990 Supp.) (emphasis added); see supra text accompanying note 2.

We upheld the constitutionality of mandatory arbitration under section 10-4-708(1.5) in State Farm v. Broadnax, 827 P.2d 531 (Colo.1992). Under the statutory scheme, Dale had the right to a hearing in which she could present all the evidence and raise all the defenses available to her. See Broadnax, 827 P.2d at 537. Additionally, Dale could have resorted to the formal judicial system if she found the arbitrator's order adverse to her interests. See id. The Uniform Arbitration Act, §§ 13-22-201 to -223, 6A C.R.S. (1987), provides that parties may apply to the courts both to vacate awards where the arbitrators exceeded their powers or where an award was procured improperly, see § 13-22-214, and parties may apply to the courts to modify or correct arbitration awards where there was an evident mistake. See § 13-22-215. Dale did not challenge the arbitration award rendered in this matter.

Collateral estoppel and res judicata have been applied to arbitration proceedings. See Rodriguez v. Bar-S Food Co., 567 F.Supp. 1241, 1245 (D.Colo.1983) (holding that under Colorado law, an arbitration may be given preclusive effect against a subsequent judicial proceeding); see also Foust v. Aetna Cas. & Ins. Co., 786 P.2d 450, 451 (Colo.App.1989) (stating arbitration award is binding and arbitrator is final judge of questions of law and fact). Citing Restatement (Second) of Judgments § 84 cmt. a (1982), Dale argues that the mandatory arbitration under the No-Fault Act is not a true form of arbitration but is a type of litigation before a specialized tribunal. Because the arbitration panel did not have jurisdiction to address Dale's tort claims and the scope of judicial review is limited, Dale would have us conclude that she is not precluded from relitigating all issues in her tort action.

These two factors, however, do not distinguish the mandatory arbitration under the No-Fault Act from other cases in which res judicata and collateral estoppel have been applied. It is characteristic of arbitration that the scope of judicial review is limited and, as noted above, arbitration awards have been given preclusive effect.

Similarly, the jurisdiction of an agency is characteristically limited in administrative adjudication. Yet, it is well established that the doctrines of res judicata and collateral estoppel may be applied to the adjudicatory decisions of administrative bodies. 3 See Salida Sch. Dist. R-32-J v. Morrison, 732 P.2d 1160, 1163 (Colo.1987); Umberfield v. School Dist. No. 11, 185 Colo. 165, 169, 522 P.2d 730, 732 (1974) (holding that prior administrative proceeding under Teacher Tenure Act and res judicata barred claim in proceeding in front of Civil Rights Commission). The findings of fact of an administrative agency, acting in an adjudicatory capacity, may be binding on the parties in a subsequent proceeding if the agency resolved disputed issues of fact which the parties had an adequate opportunity to litigate. See Industrial Comm'n v. Moffat County Sch. Dist. RE No. 1, 732 P.2d 616, 620 (Colo.1987). Therefore, we conclude that the nature of the mandatory arbitration under the No-Fault Act does not automatically negate the application of collateral estoppel.

B.

To determine, then, whether this arbitration proceeding should be given preclusive effect, we look to the factors of the collateral estoppel test. Collateral estoppel, or issue preclusion, bars relitigation of an issue determined in a prior proceeding if: (1) the issue precluded is identical to an issue actually determined in the prior proceeding; (2) the party against whom estoppel is asserted has been a party to or is in privity with a...

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