In a recent case, the Colorado Court of Appeals reviewed a case involving a workers’ compensation exclusion in a car insurance policy. Insurers should be aware of the interplay between workers’ compensation and personal automobile policies, as many insureds use their vehicle for work travel as well as personal travel. If insurers introduce exclusions in their policies, they should ensure the policies are clearly written and conform with public policy.
On December 1, 2022, the Colorado Court of Appeals announced its ruling in Del Valle v. California Casualty Indemnity Exchange.[i] The plaintiff and appellant, Daniel Del Valle, appealed a district court ruling dismissing his complaint for failure to state a claim under C.R.C.P. 12(b)(5).[ii] His complaint arose from a motor vehicle accident which occurred during the course and scope of his employment.
At the time of the accident, the appellant had a personal automobile insurance policy with California Casualty Indemnity Exchange (“CCIE”).[iii] However, because the accident occurred while he was at work, he filed a claim for workers’ compensation, settled the claim with his employer, and received medical benefits accordingly.[iv]
The appellant’s personal policy with CCIE covered medical payments for “‘reasonable expenses incurred for necessary medical’ services for bodily injuries ‘caused by an accident[,]’” subject to nine exclusions.[v] One of the exclusions stated: “We do not provide [m]edical [p]ayments [c]overage for any ‘insured’ for ‘bodily injury’ . . . . occurring during the course of employment if workers’ compensation benefits are required or available for the ‘bodily injury.’”[vi]
The appellant filed a claim with CCIE to cover additional costs as he continued receiving medical treatment after his workers’ compensation claim was settled.[vii] CCIE denied the claim based upon the above-referenced exclusion. The appellant filed suit, alleging claims for “(1) breach of insurance contract; (2) common law bad faith breach of insurance contract; (3) statutory bad faith; and (4) declaratory relief.”[viii] The appellant also sought declaratory relief; he wanted the court to invalidate the workers’ compensation exclusion as a violation of public policy.[ix]
The district court granted CCIE’s motion to dismiss for failure to state a claim, “concluding … the exclusion is valid and … [the appellant] wasn’t entitled to medical payments benefits under his automobile insurance policy.”[x] While CCIE implored the district court to grant its motion for attorney’s fees and costs, its motion was denied, and the Colorado Court of Appeals rejected CCIE’s cross-appeal on multiple bases.[xi]
Public Policy Analysis
While the appellant recognized the clarity of the exclusion and the lack of ambiguity in the language, he brought the challenge based on a violation of public policy “because it conditions and limits statutorily mandated coverage.”[xii] The Court of Appeals was unpersuaded by this argument. The court conceded an insurance policy provision may be void and unenforceable based on a violation of public policy if it attempts to “dilute, condition, or limit statutorily mandated coverage.”[xiii] The court makes its determination based on particular facts of each case.[xiv]
Here, the court held, under Colorado’s MedPay statute, C.R.S. § 10-4-635, medical payments coverage is optional, not mandatory.[xv] Thus, the workers’ compensation exclusion in the applicable policy did not “attempt to ‘dilute, condition, or limit statutorily mandated coverage.’”[xvi] The court noted agreeing with appellant would mean “no policy exclusion would ever be valid and enforceable.”[xvii] The MedPay statute does not “prohibit limitations on medical payments coverage, particularly where—as here—an insured is covered under a workers’ compensation policy.”[xviii]
Further, the appellant argued the exclusion was void because it narrowed coverage he purchased, but “that…[is] the very point of a coverage exclusion.”[xix] In a 1997 case, the court held “a policy term is not void as against public policy simply because it narrows the circumstances under which coverage applies.”[xx] However, because the appellant had already conceded the exclusion was unambiguous, the court said, “it must be enforced as written.”[xxi] Furthermore, workers’ compensation insurance is the primary form of coverage for injuries that occur at work and, in most cases, it is the exclusive remedy.[xxii]
Finally, while the appellant asserted his belief that the claim he submitted to CCIE “would not have been ‘authorized by his workers’ compensation insurer,’” the court quickly dispensed with that argument.[xxiii] While the court did not opine on the accuracy of this contention, it held even if his contention was correct, it did not “see how that could render an otherwise clear and enforceable policy exclusion void” based on the facts at hand.[xxiv] Based on this litany of reasons, the court affirmed the lower court’s dismissal of the appellant’s claim.
Denial of Appellee’s Attorney’s Fees
Based on the dismissal of appellant’s case, CCIE endeavored to recover its attorney’s fees and costs under two separate statutes, C.R.S. §§ 13-17-201 and 10-3-1116(5).[xxv] Under § 13-17-201, “a defendant is entitled to reasonable attorney fees when a district court dismisses a tort action under C.R.C.P. 12(b).”[xxvi] Here, the district court determined the “essence of the action” was not in tort because only one of appellant’s four claims was a tort claim, and the rest of the action was primarily based in contract.[xxvii] The Court of Appeals agreed and affirmed CCIE was not entitled to attorney fees under this statute.[xxviii]
Under 10-3-1116(5), a defendant can recover its attorneys’ fees if the action was frivolous. However, to qualify as “frivolous,” a party must be “unable to present a rational argument supporting [the action].”[xxix] However, “[m]eritorious actions that prove unsuccessful and good faith attempts to extend, modify, or reverse existing law are not frivolous.”[xxx] Thus, awards of attorneys’ fees are improper where “a plaintiff makes a good faith presentation of an arguably meritorious legal theory upon which no determinative authority in Colorado exists.”[xxxi]
The Court of Appeals affirmed the district court’s denial of attorneys’ fees was proper because the appellant “presented rational, good faith arguments to support his position,” and thus, it was “unpersuaded that the statutory bad faith claim was frivolous.”[xxxii]
Standing alone, the fact that an insurance policy narrows coverage an insured would otherwise be entitled to does not necessarily violate public policy considerations. However, insurers should be careful to word any exclusions clearly and unambiguously, leaving no room for interpretation. In negotiating any workers’ compensation settlement, workers should check any individual policy they plan to recover from and identify any applicable exclusions before finalizing any settlement. Finally, insurers should not hesitate to defend legitimate, explicit policy exclusions in court, but attorneys’ fees may not be recoverable where the claim is based in sound reasoning.
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[i] 2022 COA 138.
[ii] Id. at ¶ 1.
[iii] Id. at ¶ 4.
[iv] Id. at ¶ 3.
[v] Id. at ¶ 4.
[vii] Id. at ¶ 5.
[viii] Id. at ¶ 6.
[x] Id. at ¶ 7.
[xi] Id. at ¶ 8-9.
[xii] Id. at ¶ 10.
[xiii] Id. at ¶ 11 (quoting Bailey v. Lincoln Gen. Ins. Co., 255 P.3d 1039, 1045 (Colo. 2011)).
[xiv] Id. at ¶ 12 (quoting Bailey, 255 P.3d at 1045).
[xv] Id. at ¶ 13-14.
[xvi] Id. at ¶ 15 (quoting Bailey, 255 P.3d at 1045).
[xvii] Id. at ¶ 16.
[xviii] Id. at ¶ 17.
[xix] Id. at ¶ 18.
[xx] Farmers Ins. Exch. V. Chacon, 939 P.2d 517, 520 (Colo. App. 1997).
[xxi] 2022 COA 138, ¶ 18.
[xxii] Id. at ¶ 20.
[xxiii] Id. at ¶ 21.
[xxv] Id. at ¶ 23.
[xxvi] Id. at ¶ 24 (citing Mohammadi v. Kinslow, 2022 COA 103, ¶ 30).
[xxvii] Id. at ¶ 25-27.
[xxviii] Id. at ¶ 29.
[xxix] Id. at ¶ 30.
[xxx] Id. at ¶ 31 (quoting In re Parental Responsibilities Concerning D.P.G., 2020 COA 115, ¶ 24).
[xxxii] Id. at ¶ 32.