Sanderson v. American Family Mutual Insurance Co.
2010 Colo. App. LEXIS 1665
| Colo. Ct. App. | 2010Background
- Sanderson injured in a 2003 auto accident with Pierce, whose BI liability coverage was $25,000; Sanderson had a $100,000 UIM policy with AFI.
- Sanderson settled with Pierce for $25,000, which reduced his remaining UIM limit to $75,000; liability/fault remained unresolved.
- Sanderson demanded arbitration to determine entitlement to the remaining $75,000 and asserted the case was worth more than the policy limit.
- AFI responded to the arbitration demand; discovery proceeded, and Sanderson supplied evidence for damages; arbitration awarded Sanderson $357,387.80.
- AFI tendered the remaining $75,000 plus arbitration costs and prejudgment interest after the arbitration decision; Sanderson sued AFI for bad faith and sought leave to amend for exemplary damages; district court granted summary judgment for AFI and denied leave to amend; appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether fair debatability alone defeats bad faith | Sanderson argues it cannot, as a matter of law, defeat bad faith. | AFI contends fairly debatable defenses negate bad faith. | No, not alone; facts still show no reasonable basis for bad faith. |
| Whether AFI contested liability in bad faith | Sanderson argues AFI knew or acted unreasonably about liability. | AFI had a reasonable basis to dispute liability. | No reasonable jury could find bad faith on liability dispute. |
| Whether AFI's PIP offset was pursued in bad faith | Sanderson argues the PIP offset was improper and done in bad faith. | AFI's offset defense had a legal basis and was reasonable. | No basis shown for bad faith on the PIP offset. |
| Whether AFI's claim handling created a genuine issue of material fact | Sanderson points to allegedly improper investigation and low settlement offers. | AFI acted within accepted practice; evidence does not show bad faith. | No genuine issue; AFI entitled to judgment as a matter of law. |
Key Cases Cited
- Brennan v. Farmers Alliance Mut. Ins. Co., 961 P.2d 550 (Colo. App. 1998) (implied duty of good faith; reasonable defense may be permissible)
- Zilisch v. State Farm Mut. Auto. Ins. Co., 995 P.2d 276 (Ariz. 2000) (fair debatability requires reasonable care and good faith in defense)
- Freeman v. State Farm Mut. Auto. Ins. Co., 946 P.2d 584 (Colo. App. 1997) (precludes bad faith claim prior to recovery against tortfeasor; offset issues)
- Cork v. Sentry Ins., 194 P.3d 422 (Colo. App. 2008) (bad faith accrual tied to recovery from tortfeasor)
- Bucholtz v. Safeco Ins. Co., 773 P.2d 590 (Colo. App. 1988) (insurer may defend a fairly debatable claim; no duty to negotiate anew)
- Goodson v. Am. Standard Ins. Co., 89 P.3d 409 (Colo. 2004) (insurer’s bad faith liability when knowingly or recklessly disregarding claim)