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What’s the Matter With Colorado?

By Richard M. Kaudy

In Arizona, if an insurance company agrees it owes you money from your policy, you get that money.Borland v. Safeco Insurance Company, 147 Ariz. 195, 709 P. 2nd 552 (1985).

Not in Colorado. Here, courts have not said insurance companies have to pay what they admit they owe. They can squeeze you as leverage to settle your claim for less than your policy limits.

In Nevada, an insurance company denying your claim can't lay in the weeds to trap you. Powers v. USAA, 962 P. 2nd 596 ((1998), aff'd, 979 P. 2nd 1286 (1999). They have to tell you why they're denying your claim.

Not so in Colorado. They can trap you and not let you know why your claim is being denied until you sue to find out why. The Courts approve this procedure, calling the relationship between the insurer and insured "adversarial" and declaring that all first-party claims in Colorado are to be adversarial struggles to get the benefits paid for by premium dollars.

In Kansas, if you hurt a family household member by mistake while driving a family car, your car insurance will pay benefits for past and future medical expenses up to your policy limits.

Not Colorado. Even if you paralyze your father, mother, brother or sister, your Colorado car insurance company doesn't have to pay one dime to the paralyzed family member. That's because Colorado has a "household" exclusion foisted on the Colorado public by the strong insurance lobby. They convinced Colorado that family members "collude" or defraud insurance companies with "bogus" claims of catastrophic injuries.

No data, study or analysis support this fear-mongering. The insurance lobbyists whisper that the same Colorado jurors who are called upon to judge the credibility of witnesses and decide the facts in other civil cases can't be trusted to live up to the same oath when family members are involved.

Colorado jurors always have been able to punt false claims out of court. But the insurance lobbyists say that testimony by family members will cause jurors to forego reason and award gobs of money based purely on sympathy or bias.

There's more. In Arizona, again, insurance companies cannot "low ball" you on your claim by making up a number for how much you should be paid. Zilisch v. State Farm Mutual Automobile Ins. Co., 196 Ariz. 234, 995 P. 2nd 276 (2000).

But not so in Colorado. Uninsured motorist claims - where the person who hit you wasn't responsible enough to carry mandatory liability coverage - are met with an adversarial bent. That's how Colorado Courts have interpreted insurance to work in Colorado. They write invisible terms into the insurance policy guaranteeing that any first-party claim becomes "adversarial."

When you buy your policy, does the sales agent alert you that the policy is good until you submit a claim and then you are then treated as an enemy, or to use the polite term, as an "adversary?" Is this ever disclosed before you get the complimentary Road Atlas?

In Kentucky, an insurance company must play fair. The insurer has to engage in a fair debate before hiding behind its excuse that your claim is "fairly debatable." Farmland Mutual Ins. Co. v. Johnson, 36 S.W. 3rd 368 (Kentucky 2000).

Not so in Colorado. Insurance companies can substitute the adjuster's feeling about the insured's pain and this can be considered "fairly debatable." Reframing claims as "fairly debatable" enables insurance companies to incorporate slipshod claims handling behavior as part of their adversarial arsenal.

In Arizona, insurance companies are not allowed to deny claims based on an adjuster's hunch or guesswork. Rawlings v. Apodaca, 726 P. 2nd 565 (Ariz. 1986).

How about Colorado? Who knows? No Colorado judge has yet condemned such practices or issued any opinions requiring insurance companies to base claims on objective, not subjective evidence.

Insurance companies require Colorado licenses to sell these promises. They are regulated by taxpayer-funded insurance commissioners. The mission of the Colorado Division of Insurance is claimed to be to protect the consumer. But do our Courts?

Federal and state courts coddle and protect insurance companies. On the one hand, the federal courts claim that insurance companies who chisel people out of their employee insurance {ERISA} benefits cannot be sued for bad faith no matter how vicious or malicious the misconduct. The Courts protect insurance companies from responsibility for the harms they cause by reasoning that the federal government has pre-empted states rights over this since the insurance companies are not regulated.

Let's recount: the federal government says that insurance companies are not regulated even though the Division of Insurance regulates them and even though Colorado has adopted the Unfair Claim Practices Act designed to regulate insurance company claim-handling behavior.

According to federal government logic, because these insurance companies are not regulated, the federal government has to step in and regulate them and pre-empt any state remedy, like bad faith. The insured can get only the benefits that were owed in the first place and attorney fees.

Whatever emotional harm inflicted on the insured gets absolved, no remedy exists for the wrong.
The schizophrenic reasoning for how Colorado can regulate insurance company behavior through its Division of Insurance and Unfair Claim Practices Act and yet not be considered to "regulate" insurance company practices for federal pre-emption practices can't be reconciled except to coddle the insurance companies at the expense of premium-paying policyholders.

And this is how the federal court system wants insurance to operate.

Many states, like Colorado, regulate insurance through divisions of insurance.

In Oklahoma, for example, its insurance department exists "for the general benefit of not only the policyholders but of the general public." Oklahoma Benefit Life Association v. Bird, 1943 OK 103, ¶12, 135 P. 2nd 994, 997.

Courts at one time admitted that the business of insurance is affected with the public interest.

In German Alliance Insurance Company v. Lewis, 233 U.S. 389, 408, 411, 34 S. Ct. 612, 617-18, 58 L. Ed. 1011 (1914), the Supreme Court adopted with approval the words of Lord Chief Justice Hale from his 17th century treatise entitled De Portibus Maris (1 Harq.Law Tracts 78), quoted earlier in Munn v. Illinois, 94 U.S. 113, 126, 24 L. Ed. 77, 84 (1876):

When private property is 'affected with a public interest it ceases to be juris privati' {of private right} only and becomes 'clothed with a public interest when used in a manner to make it of public consequence, and affect, the community at large;' and so using it, the owner 'grants to the public an interest in that use, and must submit to be controlled by the public for the common good.'

But not in Colorado.

Because when you buy your Colorado policy, you're really buying a fight, a struggle and an adversary.

Colorado's justices and judges have now hammered home the insurance mantra: any time you seek your own benefits that you pay with your own premiums, the claim process is now considered to be adversarial. Brodeur v. American Home Assurance Co., 169 P. 3rd 139 (Colo. 2007), Olson v. State Farm Mutual Automobile Insurance Co., 174 P. 3rd 849 (Colo. App. 2007), and Bailey v. Allstate Ins. Co., 844 P. 2nd 1336 (Colo. App. 1992).

If you get hurt on the job and wonder why your workers compensation insurance adjuster refuses to authorize care and you struggle to wonder why, this is how the Colorado courts want insurance to function.

You can always sue the insurance company. Then you endure months of waiting for your trial, after enduring "motions" filed by insurance company lawyers working to cloak in secrecy the very methods by which the insurance companies "adjust" these claims.

No insurance policy contains the terms "claims handler" or "claims adjuster" or "claims supervisor" or in the parlance of modern management "team leader."

Yet Colorado judges embrace this practice called "disintermediation" where invisible barriers to benefits get erected through this "adversarial" process.

Even more, if you get hurt by somebody else, the insurance companies maintain absolute control over settling the case. But what if the insurance companies decide to low ball?

Nothing. Are they brought to justice? No.

Why? Because the courts neatly conceal from the jury the fact that it is the insurance company behind the entire process. So who gets sued? The policyholder gets sued, even though the policyholder can do absolutely nothing to settle the case. If the consumer tries to settle the case, the insurance company can pull coverage, claiming interference with the contract.

Insurance companies conduct business in Colorado practically in secret. When they hire outside management consultants, like McKinsey and Company, or Accenture, to devise plans to boost corporate profits, these business plans are not provided to state regulators. They are kept secret. When policyholders find out about them, then the insurance companies relinquish parts of them only if a "protective order" is entered guaranteeing that these profit-maximizing plans are concealed from the very public and policyholders they serve.

So what can a Colorado consumer do when the insurance company won't pay? They can file suit and await the months of endless delays clever insurance lawyers contrive. Only rarely do courts sanction insurance companies or their lawyers for not following the rules of civil procedure.

The courts reason that these "first-party actions" are adversarial in nature. Anyone who wants what they paid now learns to their sadness that instead of being treated neighborly with friendly hands they are slugged as an enemy, as an adversary.

Is this how Colorado wants insurance to work?

If we want to live in a Colorado where you fight every single time you need insurance, then applaud the adversarial approach embraced by Colorado's judges. If you want to live in a Colorado where insurance companies have to pay you what they owe and not squeeze you for leverage to pay less than your limits, then call someone who can change these values.

After all, didn't you pay good money to transfer the risk of loss onto the insurance company? Why should the insurance company, aided by the Colorado Courts, be able to shift that risk back onto your shoulders?

In some states, such as Montana, insurance companies have to act fairly, in good faith, to everyone. Not in Colorado. Short of actual fraud, insurance companies in Colorado owe an injured person nothing. Schnacker v. State Farm Mutual Automobile Insurance Company, 843 P. 2nd 102 (Colo. App. 1992). And that's what Colorado courts and legislators think is fair.

Because insurance companies bank a profit the moment they collect premiums, based on the law of large numbers, insurance companies have ample funds to pay for predicted losses up to the full policy limits. While individual losses cannot be predicted, collective losses can be predicted statistically through the laws of averages and of large numbers.

Insurance contracts are not ordinary run-of-the-mill agreements. They are almost considered contracts of adhesion where the consumer has no choice but to take it or leave it. Huizar v. Allstate Ins. Co., 952 P. 2nd 342 (Colo. 1998). When do insurance consumers ever get to bargain over the fine print? The consumers' only option is to buy the policy or vote with their feet by going somewhere else and face the same fine print.

Only in "third party" cases does the insurance company owe an obligation to protect the insured from financial loss and provide a quasi-fiduciary obligation to help the insured. This is like a banker holding your money but telling you it is not convenient for the banker to release your money to you until you jump through hoops the banker contrives. Who benefits from the delay and use of your money during this "float?"

So what's the matter with Colorado? Who can afford uncollectible insurance? Who wants collectible insurance only after running the insurance adversarial gauntlet?

Colorado legislators and judges, that's who. Their decisions favor the insurance companies and the lawyers, of course, since to fight an insurance company requires more lawyers and more lawsuits and more judges.

What's the matter with this picture? Or just with Colorado?

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