GUARANTY NAT. INS. CO. v. Williams, 98SC279.

• Decision Date: 14 June 1999
• Docket Number: No. 98SC279.,98SC279.
• Citation: 982 P.2d 306
• Parties: GUARANTY NATIONAL INSURANCE COMPANY, Petitioner, v. Larry WILLIAMS, Respondent.
• Court: Colorado Supreme Court

982 P.2d 306

GUARANTY NATIONAL INSURANCE COMPANY, Petitioner, v. Larry WILLIAMS, Respondent.

No. 98SC279.

Supreme Court of Colorado, En Banc.

June 14, 1999.

Nathan, Bremer, Dumm & Myers, P.C., Ellis J. Mayer, Denver, Colorado, Attorneys for Petitioner.

Richard Hodges, Denver, Colorado, Attorney for Respondent.

Chief Justice MULLARKEY delivered the Opinion of the Court.

The petitioner, Guaranty National Insurance Company (GNIC), appeals for the second time from a judgment of the court of appeals finding that an arbitration decision based on a contract claim did not collaterally estop the respondent, Larry Williams, from bringing a bad faith tort claim in district court. We agree that the court of appeals did not properly interpret our recent decision in Dale v. Guaranty National Insurance Co., 948 P.2d 545 (Colo.1997). Accordingly, we reverse the court of appeals' judgment and remand the case with directions.

I. Facts and Prior Proceedings

On September 22, 1990, Williams was involved in an automobile accident. He had a no-fault insurance contract with GNIC and sought payment for reasonable and necessary medical care for injuries he suffered as a result of the accident. GNIC delayed payment on some medical claims and reduced its offer of payment on others, relying for its decision on a workers' compensation payment schedule.

As relevant here, Williams filed two claims against GNIC in the district court. One was for breach of contract, including a request for treble damages for willful and wanton conduct. See § 10-4-708, 4A C.R.S. (1987 & 1990 Supp.) (contract claim). The other was for bad faith breach of the insurance contract and requested exemplary damages (tort claim). In the tort claim, Williams alleged that GNIC unreasonably delayed payment of benefits and failed to investigate the accident claims in a reasonable and timely manner.

The district court granted GNIC's motion to dismiss the contract claim because, at the time, arbitration was mandatory under the Colorado Auto Accident Reparations Act. See § 10-4-708(1.5), 4A C.R.S. (1987 & 1990 Supp.) (No-Fault Act). The trial court stayed the tort claim pending the outcome of arbitration.

An arbitration panel considered the contract claim and awarded actual damages.¹ However, the panel considered and rejected Williams's request for treble damages for willful and wanton breach of the contract. See § 10-4-708(1), (1.5)(d) (providing for treble damages if insurer's failure to pay required benefits is willful and wanton). Specifically, the panel concluded that "[t]he behavior patterns of [GNIC] in processing payment of [Williams's] medical expenses, while not condoned by the Arbitrators, did not individually or collectively constitute a willful and wanton breach of contract." There is no record of the arbitration proceeding.

GNIC subsequently filed a motion for summary judgment on the tort claim, alleging that the arbitration panel's finding on the willful and wanton contract claim collaterally estopped Williams from bringing a bad faith tort claim. The trial court initially denied the motion, but GNIC moved for reconsideration. The trial court agreed to reconsider its decision and simultaneously granted the motion for summary judgment.

The court of appeals reversed. See Williams v. Guaranty Nat'l Ins. Co., 948 P.2d 14 (Colo.App.1997) (hereinafter Williams I). We granted certiorari, vacated the court of appeals' judgment, and remanded for reconsideration in light of our decision in Dale v. Guaranty National Insurance Co., 948 P.2d 545 (Colo.1997). See Williams v. Guaranty Nat'l Ins. Co., No. 97SC330 (Colo. Dec. 15, 1997) (Order and Mandate).

On remand, the court of appeals again reversed the trial court's decision. See Williams v. Guaranty Nat'l Ins. Co., 967 P.2d 186 (Colo.App.1998) (hereinafter Williams II). We granted certiorari to consider whether Williams II properly interpreted our holding in Dale.² We conclude that Williams II does not comport with Dale. Therefore, we reverse and remand Williams II with instructions for the court of appeals to remand so that the trial court may reconsider GNIC's summary judgment motion.

II. Analysis

This case requires us to clarify when denial of a contract claim under the No-Fault Act may preclude a subsequent tort claim. Specifically, we consider the preclusive effect of an arbitration panel's finding that an insurer's actions did not constitute willful and wanton breach of contract on a subsequent tort claim for bad faith breach of the insurance contract. GNIC asserts that the court of appeals erred by interpreting Dale to mean that an arbitration decision on the contract claim could not have preclusive effect on a subsequent tort claim related to the same injury.

Williams counters that the court of appeals' opinion is consistent with Dale because, as with the plaintiff in Dale, he sought to introduce evidence at trial that had not been presented before the arbitration panel. We disagree with Williams's interpretation of the court of appeals' opinion.

The court of appeals interpreted our decision in Dale to mean that a reasonableness finding for a bad faith tort claim inevitably "encompasses more conduct than the narrow [contract] duty to pay promptly." Williams II, 967 P.2d at 187. Dale does not support this conclusion. Rather, Dale requires a trial court to determine whether a particular tort claim relies on the same conduct and evidence that supported the contract claim. If the same conduct and evidence is relevant to each claim and could have been presented to the arbitration panel, then a panel's denial of treble damages on the contract claim precludes the tort claim.

A.

In Dale, the plaintiff alleged willful and wanton breach of contract based on the defendant's refusal to pay certain medical bills after an automobile accident. Like Williams in the present case, the Dale plaintiff also alleged bad faith breach of the insurance contract. Dale's bad faith claim relied, in part, on the same pre-arbitration conduct which gave rise to the contract claim, but Dale also relied on the insurer's alleged misconduct in distributing funds following the arbitration panel's award of damages. See Dale, 948 P.2d at 547-48.

As in the present case, the Dale arbitration panel found that, while the plaintiff was entitled to damages, the defendant's actions had not constituted willful and wanton conduct. The trial court subsequently ruled that this finding collaterally estopped the plaintiff from pursuing her bad faith claim. The court of appeals affirmed. See id. We reversed; however, we did not reject application of collateral estoppel in this context, only as applied to the factual circumstances of the case.

Our decision confirmed that collateral estoppel precludes relitigation of issues decided in an arbitration proceeding if the traditional collateral estoppel test has been met:

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 party in the prior proceeding; (3) there is a final judgment on the merits in the prior proceeding; and (4) the party against whom the doctrine is asserted has had a full and fair opportunity to litigate the issue in the prior proceeding.

Id. at 550 (citations omitted). Then, after finding that the second, third and fourth factors had been met, we reached the first factor and considered whether the tort issue was identical to the contract issue that the arbitration panel had decided.

We concluded that the first factor, identity of issues, had not been met because Dale's tort claim relied, in part, on the insurer's conduct following the arbitration panel's decision. In other words, there was conduct and evidence relevant to the tort claim that Dale could not have presented to the arbitrators. See id. at 552. However, contrary to the court of appeals' interpretation below, our holding in Dale does not mean that a bad faith tort claim necessarily raises issues different from those raised by a willful and wanton breach of contract claim. Rather, we explicitly held that, assuming the other three collateral estoppel factors have been met, "a finding on the element of reasonableness in the willful and wanton claim may be preclusive with respect to the same element in the bad faith claim if the same conduct is at issue in the tort proceeding." Id. (emphasis added).

In the case before us, there is no contention regarding the second, third and fourth collateral estoppel factors. Therefore, the arbitration panel's finding that GNIC acted reasonably with respect to Williams's willful and wanton breach of contract claim has preclusive effect on the tort claim unless "(1) additional evidence of bad faith exists other than the misconduct evidence that was presented to and considered by the arbitration panel, and (2) the additional evidence could not have been presented to the arbitrators." Id. at 553. In other words, we hold that collateral estoppel applies unless there is additional conduct or evidence supporting a showing of unreasonableness that the plaintiff did not and could not reasonably have presented at the arbitration to demonstrate unreasonableness on the contract claim.

B.

Having clarified...