Riccatone v. Colo. Choice Health PlansRiccatone v. Colo. Choice Health Plans
Court of Appeals No. 12CA1197
Colorado Court of Appeals, Div. II.
Announced September 12, 2013
OPINION TEXT STARTS HERE
Arapahoe County District Court No. 08CV2779, Honorable Charles M. Pratt, Judge
Burg Simpson Eldredge Hersh & Jardine, P.C., Nelson Boyle, Englewood, Colorado, for Plaintiffs–Appellants
Hall & Evans, L.L.C., Malcolm S. Mead, Kevin E. O‘Brien, Cristin J. Mack, Denver, Colorado, for Defendant–Appellee Colorado Choice Health Plans
Overturf McGath Hull & Doherty, P.C., Richard K. Rediger, Denver, Colorado, for Defendant–Appellee Gallagher Benefit Services, Inc.
Hoskin Farina & Kampf, David M. Dodero, Andrew H. Teske, Grand Junction, Coloradо, for Defendant–Appellee CNIC Health Solutions, Inc.
Opinion by JUDGE KAPELKE *
¶ 1 Plaintiffs, Kirsten K. Riccatone, Brian Riccatone, and Ashlee D. Duran, appeal from the summary judgments entered by the district court in favor of defendants, Colorado Choice Health Plans, doing business as San Luis Valley Health Maintenance Organization (Choice), Gallagher Benefit Services, Inc. (GBS), and CNIC Health Solutions, Inc. (CNIC). We affirm.
I. Background
¶ 2 Plaintiffs are plan participants under the San Luis Valley Combined Educators Health Plan (the Plan). The Plan is an employer self-funded health care plan. Choice and CNIC are, respectively, the current and former third-party administrators for the Plan. GBS is a broker and advisor for the Plan.
¶ 3 In 2007, Duran was severely injured in a single-vehicle car accident. Shortly after the accident, her blood tested positive for alcohol. Because Duran was sixteen years old at the time of the accident, the Plan denied benefits pursuant to a provision excluding from coverage injuries resulting from the illegal use of alcohol.
¶ 4 Plaintiffs initially brought suit against CNIC and Choice for breach of contract, bad faith breach of insurance contract, and unreasonable denial of insurance benefits under
¶ 5 CNIC moved for summary judgment, and the court granted the motion. Thereafter, GBS and Choice also moved for summary judgment. Plaintiffs and the Plan entered into a settlement agreement, and рlaintiffs’ claims against the Plan were dismissed.
¶ 6 Plaintiffs then asked the court to reconsider its summary judgment in favor of CNIC and moved to amend their complaint to add claims against CNIC, GBS, and Choice of aiding and abetting tortious conduct. The court denied plaintiffs’ motions and granted summary judgment in favor of GBS and Choice on plaintiffs’ bad faith breach of insurance contract claims. Following additional briefing, the court also granted summary judgment in favor of GBS and Choice on plaintiffs’ statutory claims under
¶ 7 The court had also granted CNIC‘s motion for summary judgment on plaintiffs’ statutory claims on the grounds that the allegedly improper actions of CNIC had occurred prior to the effective date of
II. Summary Judgment
¶ 8 Plaintiffs contend that the district court erred in granting summary judgment (1) in favor of CNIC, GBS, and Choice on plaintiffs’ common law bad faith breach of insurance contract claims; and (2) in favor of GBS and Choice on plaintiffs’ claims for unreasonable denial of insurance benefits under
A. Standard of Review
¶ 9 We review an order granting summary judgment de novo. City of Aurora v. ACJ P‘ship, 209 P.3d 1076, 1082 (Colo. 2009). Summary judgment is proper when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”
¶ 10 Summary judgment is a drastic remedy that is never warranted unless there is a clear showing that there is no genuine issue of material fact. D.R. Horton, Inc., 215 P.3d at 1166. A genuine issue of material fact is one which, if resolved, will affect the outcome of the case. ACJ P‘ship, 209 P.3d at 1082. We must give the nonmoving party the benefit of all favorable inferences drawn from the undisputed facts and resolve any doubts against the moving party. Lombard v. Colo. Outdoor Educ. Ctr., Inc., 187 P.3d 565, 570 (Colo. 2008).
B. Common Law Bad Faith Claim
¶ 11 We conclude that the district court properly granted summary judgment in favor of CNIC, Choice, and GBS on plaintiffs’ common law bad faith breach of insurance contract claims because these defendants do not owe a duty of good faith and fair dealing to plaintiffs.
¶ 12 Every contract in Colorado contains an implied duty of good faith and fair dealing. Cary v. United of Omaha Life Ins. Co., 68 P.3d 462, 466 (Colo. 2003). Ordinarily, a breach of this duty does not result in independent tort liability. Id. However, because of the special nature of an insurance contract relative to other kinds of contracts and the special relationship that exists between the insurer and the insured, a breach of this duty in an insurance contract gives rise to a separate cause of action sounding in tort. Id.; Farmers Grp., Inc. v. Trimble, 691 P.2d 1138, 1141 (Colo. 1984).
¶ 13 Thus, to establish a bad faith breach of insurance contract claim against a defendant, a plaintiff must prove that the defendant owed him or her a duty of good faith and fair dealing in investigating and processing his or her claim. Cary, 68 P.3d at 465. The existence and scope of that duty are questions of law. Id.
¶ 14 Typically, only an insurer owes a duty of good faith to its insured. Id. at 466. “[A]gents of the insurance company—even agents involved in claims processing—do not owe a duty, since they do not have the requisite special relationship with the insured.” Id.; see also Martinez v. Lewis, 969 P.2d 213, 214 (Colo. 1998) (independent medical evaluation physician not bound by duty of good faith with regard to the claims adjustment process); Gorab v. Equity Gen. Agents, Inc., 661 P.2d 1196, 1198 (Colo. App. 1983) (insurance agent not bound by duty of good faith arising from insurance carrier‘s contract).
¶ 15 Despite this limitation, an insured is ordinarily adequately protected, because the duty imposed on an insurer is nondelegable, preventing the insurer from escaping liability by delegating tasks to third
¶ 16 In Cary, the supreme court imposed a duty of good faith and fair dealing on third party administrators who ran a self-funded health insurance program on behalf of the City of Arvada. The court noted that the administrators “fulfilled virtually all of the functions normally performed by an insurance company in processing claims and determining whether to deliver insurance benefits.” Id. at 468. Further, the court emphasized that, because the third party administrators had entered into a reinsurance program under which they had agreed to insure claims pаyments between $75,000 and $1 million, the administrators “had a significant financial incentive to delay payment of benefits or coerce [the insured] into a diminished settlement.” Id. Based on these factors, the court held that “[w]hen a third-party administrator performs many of the tasks of an insurance company and bears some of the financial risk of loss for the claim, the administrator has a duty of good faith and fair dealing to the insured in the investigation and servicing of the insurance claim.” Id. at 469 (emphasis added).
¶ 17 Thus, under Cary, the duty of good faith and fair dealing supporting a bad faith claim extends to third parties who (1) perform the functions of an insurer and (2) have a financial incentive to limit an insured‘s claims. Id.; see also Transamerica Premier Ins. Co. v. Brighton Sch. Dist. 27J, 940 P.2d 348, 353 (Colo. 1997) (noting a surety‘s incentive to refuse payment and force an insured into a settlement for a reduced amount).
¶ 18 We therefore conclude that, absent a financial incentive to deny an insured‘s claims or coerce a reduced settlement, a third party that investigates and processes an insurance claim does not owe a duty of good faith and fair dealing to the insured. Cary, 68 P.3d at 469. To conclude otherwise would vitiate those cases that decline to extend this duty to individuals merely involved in claims processing—an outcome the Cary court expressly rejected. See id. at 468 n.8.
¶ 19 Relying on Scott Wetzel Services, Inc. v. Johnson, 821 P.2d 804 (Colo. 1991) (Wetzel), plaintiffs argue that the lack of a financial incentive is not dispositive of our duty inquiry. Initially, we note that the claims administrator in Wetzel may have had a financial incentive to delay or deny payment of claims. See id. at 812 (noting that the administrator paid medical bills with checks written on its own account).
¶ 20 In any event, the Wetzel court explicitly based its holding on the duty arising from the statutory and regulatory structure of thе Workers’ Compensation Act, not from a duty arising from contract. id. at 812 n.10. Consequently, Wetzel is inapposite.
¶ 21 Here, the undisputed record establishes that defendants collectively fulfilled most of the functions ordinarily performed by an insurance company in processing claims and determining whether to pay insurance benefits. Unlike the administrators in Cary, however, defendants here had no financial incentive to delay payment or coerce a diminished settlement. Indeed, their compensation was unaffected by the approval or denial of benefits or the amount of settlements, and they did not provide any reinsurance coverage for claims against the Plan, or otherwise bear any risk of loss associated with the payment of benefits.
¶ 22 Because defendants did not have a financial incentive to deny or limit plaintiffs’ claims, we conclude that the district court properly granted summary judgment in favor of defendants on plaintiffs’ common law bad faith breach of insurance contract claims.
C. Statutory Claims
¶ 23 We conclude that the district court properly granted summary judgment in favor of GBS and Choice on plaintiffs’ claim for unreasonable denial of insurance benefits under
1. Relevant Law
¶ 24 Our primary goal in construing a statute is to determine and give effect to the
¶ 25 Statutory language “must be read in the context of the statute as a whоle and the context of the entire statutory scheme.” Jefferson Cnty. Bd. of Equalization v. Gerganoff, 241 P.3d 932, 935 (Colo. 2010). We must give consistent, harmonious, and sensible effect to all the statute‘s parts, id. and avoid interpretations that would render any words or phrases superfluous or would lead to illogical or absurd results. CLPF–Parkridge One, L.P. v. Harwell Invs., Inc., 105 P.3d 658, 661 (Colo. 2005).
¶ 26 When statutory language is unclear, ambiguous, or susceptible of different interpretations, “we look to sources of legislative intent, including the object the legislature sought to obtain by the enactment, the circumstances under which it was adopted, and the consequences of a particular construction.” Id. “We may consider the statute‘s declaration of purpose, its title, and its legislative history in construing legislative intent.” Id.; see also
2. Analysis
¶ 27 Here,
¶ 28 As an initial matter, we note that sections
¶ 29 In evaluating plaintiffs’ statutory claims, the district court concluded that neither GBS nor Choice was a “person engaged in the business of insurance.” Under the circumstances here, we agree with that conclusiоn.
¶ 30 The General Assembly has not specifically defined who is a “person engaged in the business of insurance“; nor has it defined what constitutes the “business of insurance.” However, in defining unreasonable conduct, the General Assembly referred to an “insurer,” rather than a “person engaged in the business of insurance“: “[F]or the purposes of an action brought pursuant to this section and section 10–3–1116, an insurer‘s delay or denial was unreasonable if the insurer delayed or denied authorizing payment of a covered benefit without a reasonable basis for that action.”
¶ 31 The general provisions of the insurance statutes define “insurer” as a “person engaged as principal, indemnitor, surety, or contractor in the business of making contracts of insurance.”
¶ 32 In light of the legislature‘s reference to “insurer” in
¶ 33 In its analysis, however, the court did not consider
“Person” means any individual, corporation, association, partnership, reciprocal exchange, interinsurer, Lloyds insurer, nonadmitted insurer, fraternal benefit society, and other legal entities engaged in the insurance business, including agents, limited insurance representatives, agencies, brokers, surplus line brokers, and adjusters. Such term shall also include medical service plans and hospital service plans regulated under parts 1 and 3 of article 16 of this title and health maintenance organizations regulated under parts 1 and 4 of article 16 of this title. Such plans and organizations shall be deemed to be engaged in the business of insurance for purposes of this part 11 only.
(Emphasis added.)
¶ 34 Under this definition, individuals or entities “engaged in the insurance business” include agents, brokers, and adjusters. Although this provision separately refers to “engaged in the business of insurance” and “engaged in the insurance business,” we discern little meaningful difference between these two phrases. Thus, one could also reasonably interpret “a person engaged in the business of insurance” to encompass all those included under the definition of “person” as described in
¶ 35 Both of the two possible interpretations we have identified have plausible merit. The legislature is, of course, aware of what constitutes an insurer and could have limited
¶ 36 Similarly, had the legislature intended to apply
¶ 37 Because the meaning of “a person engaged in the business of insurance” in
¶ 38 We discern some guidance from the title of the act enacting sections
¶ 39 Turning to the legislative history of House Bill 08–1407, we note that the sponsor‘s statements concerning the bill‘s purpose are accorded substantial weight. See Kisselman, 292 P.3d at 972 (quoting Meyerstein v. City of Aspen, 282 P.3d 456, 466 (Colo. App. 2011)).
¶ 40 Here, during the hearing before the House Committee of Business Affairs and
¶ 41 Notably, however, Sрeaker Romanoff referred to the common law standard for a bad faith breach of insurance contract claim when explaining the bill:
There is an existing standard in the law that requires an insurer to uphold the duty of good faith and fair dealing. But, the standard at least as caselaw has defined it is, a breach of that duty occurs when the insurer either knew that its delay or denial was unreasonable, which is hard for anybody to prove what the company or anyone actually knew, or when the insurer reсklessly disregarded the fact that its delay or denial was unreasonable. And, again, I think, reckless, willful, wanton, knowing, those standards are pretty high.
Hearings on H.B. 1407 before the H. Comm. on Business Affairs & Labor, 66th Gen. Assem., 2d Sess. (Apr. 24, 2008). He described the common law standard as “too high,” and clarified that the purpose of the bill was to create a less onerous standard in the first-party context. Id.
¶ 42 Thus, although sections
¶ 43 As evidenced by Speaker Romanoff‘s comments, the purpose of the statutes was to create a private right of action and to reduce the showing required under the common law standard; however, there is no indication that its purpose was either to expand or restrict the realm of possible defendants. Consequently, we conclude that, for the purposes of a claim under
¶ 44 The resulting consequences of a broad interpretation of the term “person engaged in the business of insurance” lends further support for our conclusion. See People v. Zapotocky, 869 P.2d 1234, 1238 (Colo. 1994) (“A court ... may consider the consequences of a particular construction when determining the legislature‘s intent.“); see also
Insurance is a highly uncertain and risky endeavor, because it requires accurate predictions about the occurrence and cost of future events. Insurers are able to define and limit the risks, and to set premium levels commensurate with the risks, using complex and nuanced contracts (policies). By contrast, adjusters hired by
insurers have no contract with insureds, and thus no ability to define or circumscribe their potential risks or liabilities to insureds. If adjusters faced [statutory] liability to insureds, market forces would tend to drive adjusting activities in-house.... Thus, imposing [liability] would reduce, perhaps severely, the offering of independent adjuster services. Yet widespread market acceptance has shown these services to be useful and desirable. Those adjusters continuing to operate independently despite imposition of [statutory liability] would attempt to buy insurance against this liability, or create their own cash reserves, adding these costs to their charges, and passing them on to the insurers who used the adjusters’ sеrvices. These insurers, in turn, would add the cost to the premiums charged to insureds. The insureds thus would end up paying more for insurance without obtaining more value because ... adjuster liability would provide only a redundant source of the recovery usually available from the insurer.
Sanchez v. Lindsey Morden Claims Servs., Inc., 72 Cal. App. 4th 249, 84 Cal. Rptr. 2d 799, 802 (1999); see also Martinez, 969 P.2d at 219 (noting that imposing liability on physicians conducting insurance evaluations would “undermine insurance providers’ ability to rely on [these physicians], either because physicians would be more likely to submit a report favorable to the examinee in order to avoid a subsequent law suit ... or because physicians would be less likely to perform [evaluations] altogether given the liability risks“).
¶ 45 Accordingly, for the reasons discussed above, we conclude that the trial court did not err in concluding that neither Choice, as third-party administrator, nor GBS, as plan advisor, may be held liable to plaintiffs on the claim of bad faith breach of insurance contract or the statutory claim for unreasonable denial of benefits under
III. Motion to Amend
¶ 46 Plaintiffs contend that the district court abused its discretion in denying their motion to amend the complaint to assert new claims against defendants for aiding or abetting a tortious act. We perceive no abuse of discretion.
¶ 47 We review a district court‘s denial of a motion to amend pleadings for an abuse of discretion. Sterenbuch v. Goss, 266 P.3d 428, 440 (Colo. App. 2011). A district court abuses its discretion if its decision is manifestly arbitrary, unreasonable, or unfair. Id.
¶ 48 Once a responsive pleading has been filed, a party must seek leave of the court or written consent of the adverse party to amend.
¶ 49 District courts are encouraged to look favorably upon requests to amend, and not to place arbitrary restrictions on them. Benton v. Adams, 56 P.3d 81, 85 (Colo. 2002). However, “leave to amend is not to be granted automatically.” Varner v. Dist. Court, 618 P.2d 1388, 1390 (Colo. 1980). In many cases, delay, standing alone, may justify denial of leave to amend. See Benton, 56 P.3d at 85. Other applicable factors in resolving a request to amend include a bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by previous amendments, undue prejudice to the opponent by virtue of the amendment, and futility of the amendment. Vinton, 269 P.3d at 1246. The moving party carries the burden of demonstrating a lack of knowledge, mistake, inadvertence, or other reason for not pleading a claim earlier. Polk v. Denver Dist. Court, 849 P.2d 23, 27 (Colo. 1993).
¶ 50 Here, the district court dеnied plaintiffs’ motion to amend based on plaintiffs’ undue delay and their repeated failure to cure deficiencies in their pleadings through prior amendments. The district court also found that the amendment would be futile. We conclude that the district did not abuse its discretion.
¶ 51 First, plaintiffs moved to amend their complaint after the district court had already granted summary judgment in favor of CNIC. Because that judgment was not set aside or vacated, the district court was not permitted to allow plaintiffs to amend the complaint to assert new claims against CNIC. See
¶ 52 Second, plaintiffs had previously amended their complaint twice, and when they moved to amend the complaint for a third time, the case had already been pending for approximately three years and discovery had been completed for well over a year. Neither here, nor in the district court, have plaintiffs asserted lack of knowledge, mistake, inadvertence, or any other reason for not pleading their proposed amended claims earlier. Thus, under the circumstances, we conclude that the district court did not abuse its discretion in denying plaintiffs’ motion for leave to amend their complaint for a third time. See Polk, 849 P.2d at 27. In light of our conclusion, we need not address whether the district court correctly concluded that such an amendment would have been futile.
¶ 53 The judgment is affirmed.
JUDGE CASEBOLT and JUDGE PLANK* concur.
* Sitting by assignment of the Chief Justice under provisions of