2018 COA 49
Colo. Ct. App.2018Background
- Dr. Rupinder Singh was insured by The Doctors Company (TDC) as primary insurer (policy limit $1M) and Preferred Professional Insurance Company (PPIC) as excess insurer (additional $1M); TDC had discretion to accept or reject settlements but owed the insured a duty of good faith.
- A medical-malpractice plaintiff offered to settle for $1M (within TDC’s primary limit); Dr. Singh wanted to accept; TDC declined the offer.
- PPIC (excess insurer) paid the $1M settlement and then sued TDC seeking equitable subrogation to recover that payment.
- PPIC disclaimed that it was "stepping into the insured’s shoes" and instead argued it could recover as an independent equitable claimant (relying on Hicks and Unigard).
- The district court granted summary judgment to PPIC applying Hicks factors; TDC appealed arguing PPIC must plead and prove TDC acted in bad faith in refusing the settlement.
- The Court of Appeals reversed, holding that in Colorado an excess insurer’s equitable subrogation claim is derivative of the insured’s rights and therefore requires pleading and proof of the primary insurer’s bad faith refusal to settle.
Issues
| Issue | Plaintiff's Argument (PPIC) | Defendant's Argument (TDC) | Held |
|---|---|---|---|
| Whether an excess insurer may recover via equitable subrogation without alleging it "steps into the insured’s shoes" and without proving primary insurer bad faith | PPIC: equitable subrogation can be an independent equitable claim (Hicks framework); bad faith need not be pled | TDC: excess insurer’s subrogation is derivative of insured’s rights—must plead/prove primary insurer acted in bad faith in refusing settlement | Held: Claim is derivative; PPIC must plead and prove TDC’s bad faith refusal to settle |
| Whether Hicks factors govern equitable subrogation between insurers | PPIC: Hicks factors control and support recovery | TDC: Hicks (lien/mortgage context) is inapplicable or incomplete for insurance subrogation; focus must be on insured’s contractual rights and bad faith duty | Held: Hicks factors have limited relevance; insurance-context subrogation depends on insured’s contractual rights and bad faith standard |
| Whether Unigard permits a non-derivative equitable subrogation claim | PPIC: Unigard recognizes independent equitable recovery for excess insurer | TDC: Unigard did not address non-derivative claims; it’s consistent with derivative subrogation principles | Held: Unigard does not authorize an independent non-derivative claim detached from insured’s rights |
| Whether equity can impose liability on a primary insurer beyond what the primary policy requires | PPIC: equity should require reimbursement where it "equitably should have been paid" | TDC: Equity cannot defeat bargained contractual rights; primary insurer’s discretion (subject to good faith) cannot be nullified by excess insurer’s unilateral settlement | Held: Equity will not impose obligations beyond the primary policy; recovery requires showing primary insurer breached its contractual duty (bad faith) |
Key Cases Cited
- Hicks v. Londre, 125 P.3d 452 (Colo. 2005) (articulated equitable subrogation factors in lien/mortgage context)
- DeWitt, 218 P.3d 318 (Colo. 2009) (subrogee has no greater rights than insured and "stands in the shoes" of insured)
- Goodson v. American Standard Insurance Co. of Wisconsin, 89 P.3d 409 (Colo. 2004) (insurer’s duty of good faith in settlement decisions and tort for bad faith refusal to settle)
- Unigard Mutual Ins. Co. v. Mission Ins. Co., 907 P.2d 94 (Colo. App. 1994) (division’s treatment of insurer reimbursement disputes consistent with derivative subrogation; did not decide non-derivative theory)
- Twin City Fire Ins. Co. v. Country Mut. Ins. Co., 23 F.3d 1175 (7th Cir. 1994) (example of courts allowing excess insurer to sue derivatively for primary insurer’s bad faith)
- Hazelrigg v. American Fidelity & Casualty Co., 228 F.2d 953 (10th Cir. 1955) (primary insurer not liable if it acted in good faith in refusing settlement)