Colorado Case Law Update

Author: Terra Davenport

January 7, 2019 9:00am

Insurance—Bad Faith—Independent Medical Exams

No. 18SA135, Schultz v. GEICO Casualty Company, § 10-3-1115, C.R.S. (2018)

Plaintiff-petitioner Charissa Schultz was injured in a 2015 car accident when the other vehicle driver failed to stop at a stop sign. The other vehicle driver’s insurance company settled for its $25,000 policy limit, and Schultz made a demand on her own uninsured/underinsured motorist benefits under her GEICO policy, which also had a $25,000 limit.

In April 2017, after months of correspondence and apparent review of an MRI performed on Schultz in April 2015, GEICO offered Schultz its full policy limit, and it did so without requesting that she undergo an independent medical examination (“IME”). Indeed, GEICO’s claim logs reveal that at the time GEICO decided to offer Schultz its policy limits, it “concede[d] peer review wouldn’t be necessary,” indicating an affirmative decision not to request an IME.

A few months later, Schultz filed the present lawsuit asserting claims for bad faith breach of an insurance contract and unreasonable delay in the payment of covered benefits. GEICO denied liability, disputing the extent and cause of Schultz’s claimed injuries and asserting that causation surrounding the knee replacement surgeries was “fairly debatable” because Schultz had preexisting arthritis, which GEICO claimed may independently have necessitated her surgeries. To establish its defense, GEICO ordered the IME and the district court granted the request.

Holding and Reasoning

The Colorado Supreme Court concluded GEICO’s conduct had to be evaluated based on the evidence before it when it made its coverage decision and therefore, GEICO was not entitled to create new evidence in order to try to support its earlier coverage decision.

The Court also concluded the district court abused its discretion when it ordered Schultz to undergo an IME over three years after the original accident that precipitated this case and a year and a half after GEICO had made the coverage decision at issue. The Court reasoned, GEICO had not shown that newly developed medical evidence would be pertinent to the question of what GEICO knew when it made its coverage decision in this case. In addition, GEICO had not explained how the state of Schultz’s medical condition at present time would be relevant to her medical condition over a year prior, when GEICO made its coverage decision.

GEICO sought a new medical examination, with the apparent intention of introducing such post-coverage-decision evidence to establish the reasonableness of its earlier coverage decision. For the reasons set forth above, the Colorado Supreme Court held it could not do so.

 

Strict Privity—Standing—Pleading

No. 16SC849, Bewley v. Semler

R. Parker Semler, a member of a condominium association, filed a breach-of- contract claim against the law firm that employed the association’s attorney. He alleged the attorney had a contract with the association’s president not to represent one association member against another. He also alleged the attorney had, on behalf of other association members he was representing, acquired a deed conveying ownership of parking spaces over which Semler also claimed ownership, thereby breaching the contract and damaging Semler.

Holding and Reasoning

The trial court dismissed the claim for lack of standing. A division of the court of appeals reversed, concluding that Semler had sufficiently alleged a breach-of-contract claim as a third-party beneficiary, and concluding that the strict privity rule, which “precludes attorney liability to non-clients absent fraud, malicious conduct, or negligent misrepresentation” did not bar Semler’s claim. The Colorado Supreme Court reversed and determined the strict privity rule barred Semler’s breach-of-contract claim, and as such, he lacked standing to assert it.

The Colorado Supreme Court declined to extend the third-party beneficiary theory of contract liability to allow claims brought by non-clients against attorneys, as doing so would be contrary to the policies underlying the strict privity rule. Limiting the Attorneys’ liability to their clients protects their duty of loyalty to and effective advocacy for the clients with whom they have an attorney-client relationship.

The Supreme Court reasoned, to extend their liability to the Association’s members, by contrast, could force the Attorneys to weigh their clients’ interests against non-clients’ interests, which might prevent them from acting in their clients’ best interest. Doing so could likewise result in adversarial relationships between the Attorneys and the Association’s members, creating conflicting duties that could constrain the Attorneys’ ability to represent their clients. Further, extended liability might deter the Attorneys from accepting certain legal matters, making it more difficult for their clients to obtain the Attorneys’ services. The policies underlying the strict privity rule therefore counsel against permitting Semler’s breach-of-contract claim.

 

Jury Deliberations—Conduct Affecting Jurors— Risk of Prejudice—Harmless Error

No. 16SC114, Johnson v. Schonlaw

Albert Johnson filed suit against VCG Restaurants Denver, Inc., d/b/a/ PT’s All Nude, its managing agency, and a number of its employees, including Ryan Lee Schonlaw, asserting claims arising from injuries he sustained just outside the nightclub at closing. One of the defendants was dismissed before trial, and of the remaining defendants, the jury returned verdicts finding Schonlaw liable on claims of battery and intentional infliction of emotional distress and VCG liable for battery, intentional infliction of emotional distress, and negligent supervision. The district court ultimately entered judgments of $74,452.83 against Schonlaw and $246,462 against VCG.

The jury was instructed on the defendants’ theory the “courtesy patrol members” were exercising their legal rights and/or the legal rights of their employer, VCG, in preventing Johnson from regaining access to the club and in escorting him away from the club. In addition to the elements of battery, intentional infliction of emotional distress, and negligent supervision and training, the jury was instructed on the affirmative defenses of consent, self-defense, defense of another, defense of real property, and comparative negligence.

After the close of the evidence, the district court asked the parties if they would agree to allow the alternate juror, who had been permitted without objection to participate in pre-deliberation discussions, to deliberate with the six regular jury members. Johnson agreed, but Schonlaw and VCG objected. The district court overruled their objection, indicating the matter was within the court’s discretion, and instead instructed the jury that all seven jurors, including the alternate, would deliberate to a verdict.

The jury deliberated over the course of some three days. On the third and final day of deliberations, the jurors sent a note to the court indicating they could not come to an agreement on punitive damages. Johnson then withdrew his punitive damages claim and shortly thereafter the jury returned its verdicts, signed by all seven members.

On direct appeal, the court of appeals reversed and remanded for a new trial, concluding whatever discretion may be permitted a trial court by C.R.C.P. 47(a)(5) with regard to pre-deliberation discussions does not extend to allowing an alternate to deliberate with the regular jurors and, similarly, any discretion granted at section 13- 71-142, C.R.S. (2018), to retain the alternates when the jury retires to deliberate does not conflict with the express requirement of Rule 47(b) for the court and parties to agree before permitting an alternate juror’s actual participation in deliberations. Having found the district court therefore erred in permitting the alternate to participate over the objection of a party, the intermediate appellate court further found, in reliance on People v. Boulies, 690 P.2d 1253, 1255–56 (Colo. 1984), a more-than-quarter-century-old criminal case from this court, that the participation of the alternate raised a presumption of prejudice requiring reversal unless rebutted, and that the presumption remained unrebutted by Johnson.

Holding and Reasoning

Johnson petitioned for review solely on the question whether permitting the alternate to deliberate in this civil case was an error subject to the harmless error analysis dictated by C.R.C.P. 61, as distinguished from an error raising a presumption of prejudice requiring reversal in the absence of adequate rebuttal. The Colorado Supreme Court determined the error in this case did not affect the substantial rights of either Schonlaw or VCG, and it should have been disregarded as harmless, as required by C.R.C.P. 61. The judgment of the court of appeals was therefore reversed, and the case was remanded for further proceedings.

Because an error impairing the basic fairness of the trial would effectively constitute error in the nature of structural error, requiring reversal without more, the erroneous participation by an alternate juror, which the Court held does not in and of itself amount to structural error, could avoid being disregarded as harmless only if it substantially influenced the outcome of the case.  While the strength of the evidence supporting a verdict is often an important consideration, so too is the specific nature of the error in question and the nature of the prejudice or risk of prejudice associated with it.

Therefore, although overwhelming evidence supporting a verdict may be sufficient in and of itself to determine that a trial error is harmless, even in the absence of such overwhelming evidence, the harmlessness of erroneously allowing an alternate to deliberate in a civil case must remain a function of the risk of prejudice associated with that particular kind of error, under the circumstances in which the error occurred.

The Supreme Court found the trial court’s error in permitting the alternate juror, who was indistinguishable from the other jurors in all meaningful respects, to deliberate and participate fully with the principal jurors in considering and returning a verdict, notwithstanding its failure to secure the agreement of all parties, did not substantially influence the outcome of the case. The error therefore did not affect the substantial rights of the defendants. Because the error did not affect the substantial rights of either Schonlaw or VCG, the Court held it should have been disregarded as harmless, as required by C.R.C.P. 61. The judgment of the court of appeals was therefore reversed, and the case remanded for further proceedings.

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