Farmers Group, Inc. v. Williams
| Citation | 805 P.2d 419 |
| Decision Date | 04 February 1991 |
| Docket Number | No. 89SC552,89SC552 |
| Parties | FARMERS GROUP, INC., a Nevada corporation; and Mid-Century Insurance Company, a California corporation, Petitioners and Cross-Respondents, v. Rodney Paul WILLIAMS and Jo Maria Gatewood, a/k/a/ Jo Maria Gatewood-Williams, individually and as husband and wife, Respondents and Cross-Petitioners. |
| Court | Supreme Court of Colorado |
Hall & Evans, Alan Epstein, Eugene O. Daniels, Arthur R. Karstaedt, Denver, for petitioners/cross-respondents.
Pryor, Carney and Johnson, P.C., Thomas L. Roberts, Englewood, Carol Gilman Ford, Denver, for respondents/cross-petitioners.
Fogel, Keating and Wagner, P.C., Timothy F. Devereux, William L. Keating, Denver for amicus curiae Colorado Trial Lawyers Ass'n.
Ireland, Stapleton, Pryor & Pascoe, P.C., William G. Imig, Mark W. Williams, Denver, for amicus curiae Nat. Ass'n of Independent Insurers.
Creamer & Seaman, P.C., Thomas J. Seaman, David P. Reiter, Denver, for amicus curiae Colorado Defense Lawyers Ass'n.
We granted certiorari to review Williams v. Farmers Insurance Group, Inc., 781 P.2d 156 (Colo.App.1989), which held that section 10-4-708(1), 4A C.R.S. (1987 & 1990 Supp.), did not provide the exclusive remedy against automobile insurers that refuse to pay benefits in bad faith, and that the burden of proving willful and wanton conduct under section 10-4-708(1) was by a preponderance of the evidence. We affirm.
On October 26, 1980, Rodney Williams and his common-law wife, Jo Maria Gatewood-Williams, were injured when a rock fell on their car during a snowstorm on Guanella Pass, Colorado. Williams notified his automobile insurance carrier, whose parent company was Farmers Group, Inc., of the accident and submitted claims for personal injury protection benefits under his policy. Farmers paid those claims for five months, but then ceased paying any benefits after the Williams refused to sign several releases and to undergo multiple examinations requested by Farmers. In September 1982, Williams filed a complaint against Farmers alleging breach of contract, that the breach was willful and wanton, extreme and outrageous behavior, and that Farmers committed the tort of bad faith breach of contract.
In December 1983, a jury returned a verdict in favor of Williams on the willful denial of personal injury protection benefits and tortious bad faith breach of contract, but denied Williams' claim for punitive damages for extreme and outrageous conduct. The jury awarded Williams contract benefits of $10,922, treble damages of $32,767 (as provided by Colorado's No-Fault Act), and compensatory damages on the bad faith tort claim of $350,000. In May 1984, the district court granted Farmers' motion for judgment notwithstanding the verdict. That ruling was overturned by the court of appeals in Williams v. Farmers Insurance Group, Inc., 720 P.2d 598 (Colo.App.1985), which remanded the case with instructions that a different judge review Farmers' post-trial motions. 1
A different trial court reinstated the jury verdicts, imposed interest, and awarded costs and attorney fees against the defendant insurers. The Colorado Court of Appeals affirmed, ruling that common-law bad faith remedies were not preempted by the No-Fault Act, and that the treble damages provision of the Act, section 10-4-708(1), was provable by a preponderance of the evidence rather than by a beyond a reasonable doubt standard. Williams v. Farmers Ins. Group, Inc., 781 P.2d at 159-60. Williams' cross-appeal issues were not addressed.
We granted certiorari to review whether the No-Fault Act preempts tort claims against an automobile insurance company for bad faith breach of an insurance contract, whether willful and wanton conduct under section 10-4-708(1) must be proved beyond a reasonable doubt, and whether Williams as a cross-petitioner on certiorari was obligated to file a petition for rehearing in the court of appeals. 2
Farmers first argues that section 10-4-708(1) provides the exclusive remedy for an insured against the insurer for refusal to provide personal injury protection (PIP) benefits under the insurance contract.
Williams sought compensatory damages based on his assertion that Farmers had withheld his benefits in bad faith. In the context of insurance contracts, courts have established two standards of conduct by the insurer, depending on the type of benefit the insured is seeking to enforce. When the benefit derives from the insurer's duty to defend the insured against third-party actions, that relationship is characterized as a "third-party claim." A "first-party claim," on the other hand, results when the insured makes a claim against his insurer for benefits accruing directly from the insurance contract. See Klaus & Cahill, Colorado's No-Fault Statute--Does It Bar Common Law Bad Faith Claims?, 17 Colo.Law. 449 (1988).
We first recognized the tort of bad faith breach of insurance contracts in a third-party situation in Farmers Group, Inc. v. Trimble, 691 P.2d 1138 (Colo.1984). In Trimble, we said, "Particularly when handling claims of third persons that are brought against the insured, an insurance company stands in a position similar to that of a fiduciary." Id. at 1141. Because in a third-party claim the insurer retains the absolute right to control the defense of actions, we held that the standard applicable to establish the tort of bad faith is one of reasonableness. Id. at 1142.
In 1983, the court of appeals recognized a bad faith claim in a first-party situation. Rederscheid v. Comprecare, Inc., 667 P.2d 766 (Colo.App.1983). In Travelers Insurance Co. v. Savio, 706 P.2d 1258, 1273-74 (Colo.1985), we held that an employee could bring a first-party claim against his employer's workers' compensation insurance carrier for tortious bad faith breach of contract. We said, however, that because in the first-party situation the insured did not cede any right to represent his interests to the insurer, the insurer's standard of care differed from an insurer in third-party circumstances. "[A] worker's compensation claimant who asserts that an insurer has failed to pay a claim in bad faith must establish that the insurer acted unreasonably and with knowledge of or reckless disregard for the fact that no reasonable basis existed for denying the claim." Id. at 1274 (emphasis added).
Savio rejected the insurer's argument that the Workers' Compensation Act afforded the employee his sole remedy and precluded common-law tort claims against insurance carriers. Id. at 1264-67. Although the Act provided exclusive remedies for injuries occurring while on the job, it did not provide remedies to the employee for the insurer's bad faith refusal to pay claims. Id. 3
In 1973, the Colorado Auto Accident Reparations Act, also referred to as the No-Fault Act, was adopted. §§ 10-4-701 to -723, 4A C.R.S. (1987 & 1990 Supp.). Unlike the Workers' Compensation Act, Colorado's No-Fault Act does provide remedies for the injured insured against an insurance carrier that, in bad faith, does not pay personal injury protection benefits. Section 10-4-708(1) provides:
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. In the event the insurer is required by such action to pay any overdue benefits, the insurer shall, in addition to the benefits paid, be required to pay the reasonable attorney fees incurred by the other party. The insurer shall pay interest on the benefits which were in controversy at a rate of eighteen percent per annum, with interest commencing from the date the benefits in controversy were due. In addition, in 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 the other amounts due to the other party under this subsection (1), an amount which is three times the amount of unpaid benefits in controversy in the action. 4
Our task is to determine whether the General Assembly intended section 10-4-708(1) to be the exclusive remedy for automobile insurer bad faith, thereby precluding a separate tort claim for bad faith breach of contract. 5
Our primary task in construing a statute is to give effect to the intent of the General Assembly. People v. District Court, 713 P.2d 918, 921 (Colo.1986). In this case, it is necessary to determine whether the General Assembly intended to abrogate all common law rights of action not specifically set forth in the statute. To discern that intent, a court should look first to the plain language of the statute. Id. Words and phrases should be given effect according to their plain and ordinary meaning, and "we must choose a construction that serves the purpose of the legislative scheme, and must not strain to give language other than its plain meaning, unless the result is absurd." Colorado Dep't of Social Serv.'s v. Board of Comm'rs, 697 P.2d 1, 18 (Colo.1985). Section 2-4-201(1)(b) and (e), 1B C.R.S. (1980), states it is presumed that a "just and reasonable intent is intended" and that the "[p]ublic interest is favored over any private interest" when a statute is enacted. Our task is to determine the legislative intent, and to construe the statute as a whole to give effect to all of its parts. People v. Lee, 180 Colo. 376, 506 P.2d 136 (1973); Massey v. District Court, 180 Colo. 359, 506 P.2d 128 (1973).
The No-Fault Act was enacted in 1973 to "avoid inadequate compensation to victims of automobile accidents; to require registrants of motor vehicles in this state to procure insurance covering legal liability arising out of ownership or use of such vehicles," and to provide benefits to persons occupying or persons injured in accidents involving such vehicles. § 10-4-702.
Farmers asserts that because "willful and wanton" and "bad faith" essentially...
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