American Family Insurance Liable for Bad Faith
Kidneigh & Kaufman, P.C.
730 17th Street Suite 635
Denver, CO 80202
Telephone: + 303 393 6666
On October 4, 2012 the Colorado Court of Appeals confirmed a bad faith breach of insurance contract award against American Family Insurance. The case arose when the Plaintiff was seriously injured in a motor vehicle accident in August 2008. Due to his severe injuries, it was quickly clear that his damages were in excess of the combined limits of the at fault driver and his own underinsured policy with American Family. As such, the Plaintiff requested American Family tender its policy limits.
Despite it being clear that the Plaintiff was entitled to the policy limits, American Family delayed payment for several months based on its erroneous belief that it did not have to make payment until the Plaintiff had resolved his medical lien with Kaiser. Even after Plaintiff’s attorney informed American Family it had no legal basis to delay payment and offered alternative solutions, American Family refused to tender its policy limits. The Plaintiff then brought this action against American Family. The district court found for the Plaintiff and American Family appealed.
Based on these facts, the Court of Appeals held that “sufficient evidence supported the trial court’s finding that American Family was liable on the Mahoney’s common law claim” and that C.R.S. 10-3-1116(1) “provides for an award of two times the covered benefit on statutory bad faith claims, regardless of whether the insurer paid the covered benefits by the time of trial.” Essentially the Court found that American Family acted in bad faith when it refused to tender its policy limits to the Plaintiff when there was clear evidence his damages were in excess of the combined limits and there was no legal basis to withhold payment based on Kaiser’s lien.
Lastly, the Court concluded the Defendant was incorrect in arguing the Plaintiff was only entitled to his reasonable attorney fees incurred in the district court and held that the Plaintiff was indeed entitled to his reasonable attorney fees that were incurred during the appeal as well.
The entire opinion can be found at Mahoney v. American Family Mutual Insurance Company, 11CA2120 (Colo. App. 2012).