On May 21, 2018, the Colorado Supreme Court shook up traditional auto insurance norms when it decided State Farm Mutual Auto Insurance Company v. Fisher, 2018, No. 15SC472. In a nutshell, the Court held insurers have a duty not to unreasonably delay or deny payment of covered benefits, even when there may be remaining liability and/or damage disputes in existence regarding the insured’s claim.

Since May of 2015, when the Fisher case was decided at the trial court level, Colorado has imposed a system of piecemeal payment of medical damages as a result of auto accidents. The Supreme Court upheld the trial court and Court of Appeals’ decisions in the matter and directly affected claims made under underinsured or uninsured motorist policies. So what does the decision mean for auto insurers and auto insurance policy holders in Colorado? The answer: a lot.

A Brief Overview of UIM Insurance

Underinsured or Uninsured (“UIM”) insurance is designed to protect insured drivers from incurring damages as a result of auto accidents with drivers who fail to carry adequate liability insurance. This coverage is designed to place a driver who is injured by an uninsured or underinsured motorist in the same position as if the uninsured or underinsured motorist carried insurance with liability limits equal to the insureds’. (USAA v. Parker, 200 P.3d 350, 358 (Colo. 2009); see also Sunahara v. State Farm Mut. Auto. Ins. Co., 280 P.3d 649, 657 (Colo. 2012).) When an insured driver is harmed by an underinsured or uninsured motorist, UIM insurance allows the insured to make a claim against their own insurance company. As with any personal injury matter, the insured claimant/plaintiff must prove he or she is entitled to the damages sought. Traditionally, UIM coverage is dispersed all at once through settlement or judgement. However, as a result of Fisher, the Supreme Court of Colorado affirmed the requirement of a piecemeal payment system explored in greater detail below.

The Fisher Case

Plaintiff Dale Fisher was injured when he was struck by an underinsured motorist.  Mr. Fisher was not at fault in the accident and was covered under multiple State Farm UIM insurance policies. Mr. Fisher accrued over $60,000 in medical expenses and made claims for lost wages as a result of the incident. Although State Farm agreed Mr. Fisher’s medical bills were covered under the policy, disputes arose with regard to the lost wages claims and the timing of payment of Mr. Fisher’s medical damages. As a result, Mr. Fisher sued and alleged State Farm had “unreasonably delayed” paying the outstanding medical bills. State Farm held the position no payment was owed to Mr. Fisher because there were other parts of his claim still in dispute.

A jury returned a verdict in favor of Mr. Fisher, finding State Farm violated sections of Colorado’s Penalty Statutes, which provide an insurer “shall not unreasonably delay or deny payment of a claim for benefits owed to or on behalf of any first-party [insured] claimant.” (Colo. Rev. Stat. § 10-3-1115(1)(a) (2016)). The Statutes further hold, “[i]f a claim for payment of benefits has been unreasonably delayed or denied, the claimant ‘may bring an action . . . to recover reasonable attorney fees and court costs and two times the covered benefit.'” (Fisher, 2015 WL 2198515, at *2 (quoting § 10-3-1116(1)).

On May 7, 2018, the Colorado Court of Appeals affirmed the Fisher jury’s decision and further held that consumers and insurers were precluded from opting out of the piecemeal payment system through contracts with their insureds. Such language would be rendered “unenforceable.” (Id. at *6 n.2.) The Court of Appeals relied upon the term “unreasonable” contained within the Penalty Statutes, just as the jury had at the trial court level. The Colorado Supreme Court agreed with the lower courts, resulting in a landmark decision for auto insurance relations in the state of Colorado.

The Aftermath of Fisher

The decision in Fisher not only affects auto insurers but auto insureds as well. Auto insurance companies are not afforded the same safeguards health or worker’s compensation insurance companies possess. Thus, auto insurers are forced to pay astronomical health care expenses under this piecemeal UIM system. This is where the policy holder’s death spiral starts. As a result of the rising costs insurers are forced to pay, auto insurance premiums in Colorado have spiked to an all-time high. Consequently, the laws implemented to protect the insured against motorists with little to no insurance has resulted in fewer motorists being able to afford the protections in the first place. This vicious cycle will continue to cripple both insurers and policy holders alike until new law is passed in Colorado.

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