HOW TO MAKE 17% INTEREST ON AN UNINSURED MOTORIST CLAIM
Stephen C. Kaufman
This article will provide plaintiffs attorneys with a blueprint for arguing that an insured is entitled to 17% prejudgment interest on his or her uninsured motorist claim. Sure, this sounds odd and likely the reader’s eyes are starting to roll off to the left the way they do when something they are hearing is not making sense. Yet, recall that many strange things can happen when it comes to the law. Who would have ever thought there would be a decision which required an insurer to pay all the costs involved in an uninsured motorist arbitration, including the arbitrators’ fees?1 Who could have imagined that an insurer would be liable for uninsured motorist and personal injury protection benefits because someone intentionally shot its insured?2 And, who would have considered it possible that underinsurance limits would be determined by subtracting from uninsured motorist limits the amount of the insured’s settlement with the tortfeasor, rather than the full amount of the tortfeasor’s policy limits?3 With this in mind, it is proposed that 8% interest under C.R.S. § 5-12-102(1) can be added to 9% interest under C.R.S. § 13-21-101, so that total prejudgment interest on an award of uninsured benefits comes to 17%.
An insured, based on Colorado’s uninsured motorist act4 and case law, is entitled to recover C.R.S. § 13-21-101 prejudgment interest, accruing from the date of the accident, as part of an award of uninsured motorist benefits. In addition, pursuant to Bowen v. Farmers Insurance Exchange,5 an insured must be allowed to recover C.R.S. § 5-12-102(1) interest on an award of damages for uninsured motorist benefits from the date an insurer refuses an insured’s settlement demand. This includes C.R.S. § 5-12-102(1) interest on that part of the damage award which is made up of C.R.S. § 13-21-101 interest. Analysis of these issues will demonstrate that an insured is entitled to awards of interest under both statutes inasmuch as such awards are non-duplicative and applicable to different and distinct situations.
COLORADO’S UNINSURED MOTORIST STATUTE REQUIRES THAT C.R.S. 13-21-101 PREJUDGMENT INTEREST BE INCLUDED IN A DAMAGE AWARD OF UNINSURED MOTORIST BENEFITS.
Colorado’s uninsured motorist act was enacted to allow a person injured by an uninsured motorist to recover uninsured motorist benefits from his or her own insurer to the same extent, up to policy limits, as if a direct cause of action had been pursued against the uninsured tortfeasor. To this end, the act states that it is for the protection of insureds “who are legally entitled to recover damages from owners or operators of uninsured motor vehicles because of bodily injury, sickness, or disease, including death.”6 Moreover, it provides that “[u]ninsured motorist coverage shall include coverage for damage for bodily injury or death which an insured is legally entitled to collect from the owner or driver of an underinsured motor vehicle.”7
Included within the damages which an insured can recover in making an uninsured motorist claim is C.R.S. 13-21-101 interest, since such interest is considered to be part of damages when making a claim against a tortfeasor in a personal injury action. In this regard, our Supreme Court has expressly held that C.R.S. 13-21-101 prejudgment interest constitutes damages, stating that there is “a long line of cases treating prejudgment interest as a form of damages”8 and that “such prejudgment interest is an element of compensatory damages in actions for personal injuries, awarded to compensate the plaintiff for the time value of the award eventually obtained against the tortfeasor.”9
CONTINUE ON TO PAGE 02
Case law has reiterated the principle that the same damages recoverable in a personal injury action against a tortfeasor, which would include C.R.S. 13-21-101 interest damages, are also recoverable when making a claim for uninsured motorist benefits. Our Supreme Court set forth this tenant of law, stating that uninsured motorist coverage “enables the insured to gain compensation for loss due to the negligent conduct of non-insured motorists in the same manner as the insured would be compensated for loss due to the negligent conduct of insured motorists.”10 On this point it has also been said: “This theme, requiring that a person injured by an uninsured motorist be compensated to the same extent as one injured by an insured motorist, has been followed consistently by the courts of this state.”11
Most insurance policies also follow the uninsured motorist act, as well as case law in providing that uninsured motorist benefits include whatever the insured could recover from the tortfeasor. In this regard, one such policy reads: “We will pay damages for bodily injury an insured is legally entitled to collect from the owner or driver of an uninsured motor vehicle.”
In order to ensure that a person injured at the hands of an uninsured motorist receives the same compensation that he or she would be entitled to in a direct cause of action against an insured tortfeasor, C.R.S.13-21-101 prejudgment interest must be awarded as part of the damages with respect to a claim for uninsured motorist benefits. This is because C.R.S. 13-21-101 makes a tortfeasor in a personal injury action liable for prejudgment interest at the rate of 9%, accruing from the date the tort was committed. On this point, the statute states:
In all actions brought to recover damages for personal injuries . . . , it is lawful for the plaintiff in the complaint to claim interest on the damages claimed from the date the action accrued. When such interest is so claimed, it is the duty of the court in entering judgment for the plaintiff in such action to add to the amount of damages assessed by the jury, or found by the court, interest on such amount calculated at the rate of nine percent per annum . . . .
Thus, if a court or arbitration panel were to fail to award C.R.S. 13-21-101 prejudgment interest, accruing from the date of the accident, to the insured as part of uninsured motorist benefits, the insured would not be receiving compensation equal to that of a person bringing suit directly against a tortfeasor. Such a result would run contrary to the uninsured motorist act and case law which requires compensation with respect to a claim for uninsured motorist benefits to be identical to that which a person would be entitled to in a personal injury action against the tortfeasor. It would also, likely, run contrary to the language of the applicable insurance policy expressly providing for such equality in compensation.
CONTINUE ON TO PAGE 03
Furthermore, because the insurer is the drafter of the policy, any ambiguities therein must be resolved against the insurer and in favor of the insured.12 So, if there is an ambiguity in the policy language in terms of whether an insured can recover C.R.S. 13-21-101 interest as part of uninsured motorist benefits, the ambiguity must be resolved against the insurer and in favor of the recovery of such interest. Accordingly, C.R.S. 13-21-101 prejudgment interest at the rate of 9% per annum, accruing from the date of the accident, should be added to any award of uninsured motorist benefits that is rendered in favor of an insured.
THE BOWEN CASE DOES NOT STAND AS GROUNDS TO SUPPORT A DENIAL OF C.R.S. 13-21-101 INTEREST WITH RESPECT TO A CLAIM FOR UNINSURED MOTORIST BENEFITS.
Recently, defendants have been citing Bowen v. Farmers Insurance Exchange13 for the proposition that it is improper to award C.R.S. 13-21-101 interest with respect to a claim for uninsured motorist benefits. This position represents a misreading of Bowen and is not supported by either the facts of the case, or the language of the opinion.
In Bowen, the plaintiff was injured in an automobile accident in 1989. She settled her claim against the tortfeasor and then sought to recover underinsurance benefits from her own insurer. In December of 1993, the plaintiff and her insurer stipulated to both liability and damages. Thereafter, plaintiff sought to recover interest pursuant to C.R.S. 5-12-102(1), which allows for interest “[w]hen money or property has been wrongfully withheld.” Such interest accrues “from the date of the wrongful withholding.” Because the plaintiff’s right to underinsurance benefits derived from her contract of insurance with her insurer, the Court of Appeals held that C.R.S. 5-12-102(1) interest would start to run from the date the insurer breached the contract.14 This was determined to have been at the time it refused to pay underinsurance benefits after demand had been made by the plaintiff.15 In so holding, the court noted that the breach would not be as of the date of the accident “[s]ince this is a suit on the policy, rather than a tort claim,” nor would it be as of the date of the stipulation since that would result in unwarranted delays by insurers in the payment of benefits.16
What Bowen did not do is hold that C.R.S. 13-21-101 interest is not to be included as part of an award of uninsured motorist benefits. First, nowhere in the opinion does the court indicate that it is making a determination between C.R.S. 13-21-101 and C.R.S. 5-12-102(1), as to which prejudgment interest statute is to apply in the calculation of uninsured motorist benefits. Instead, the issue before the court was the date C.R.S. 5-12-102(1) interest would start after uninsured motorist benefits were already determined and then wrongfully withheld.
CONTINUE ON TO PAGE 04
Second, the decision makes clear that suit was brought based, not on tort, but on the insurer’s breach of contract in not paying uninsured benefits when due and that C.R.S. 5-12-102(1) is the interest statute that applies where there is a breach of contract. On the other hand, a determination of the amount of uninsured motorist benefits is based not on a breach of contract, but on what the insured could recover from the tortfeasor in a tort action.
Consequently, C.R.S. 13-21-101 interest is included in the calculation of overall uninsured motorist benefits that are owed. And then, it is only after the insurer refuses to pay the uninsured motorist benefits that have been calculated to be owed — including the portion thereof made up of C.R.S. 13-21-101 interest — that there is a wrongful withholding and C.R.S. 5-12-102(1) interest starts to accrue. Furthermore, when C.R.S. 5-12-102(1) interest begins to accrue it does so with respect to the entire award of uninsured motorist benefits, including that portion thereof that is made up of C.R.S. 13-21-101 interest.
Third, in Bowen, C.R.S. 13-21-101 interest had already been taken into account by virtue of the parties’ stipulation of damages. As discussed in Part I above, damages with respect to a claim for uninsured motorist benefits must include whatever the claimant could have recovered from the tortfeasor in a personal injury action. Because C.R.S. 13-21-101 by its terms entitles a plaintiff in a personal injury action to recover interest from the date of the accident giving rise to the action, so too is a person making claim to uninsured motorist benefits entitled to have C.R.S. 13-21-101 interest calculated as part of those benefits. Accordingly, whenever there is a stipulation of damages made in the context of an uninsured motorist claim, as in Bowen, C.R.S. 13-21-101 interest has already been included in the amount of damages that have been stipulated to.
It is because C.R.S. 13-21-101 interest had already been taken into consideration by way of the stipulation that the plaintiff in Bowen did not file suit seeking an award of interest under C.R.S. 13-21-101. To have done so would have been to ask for a double recovery of C.R.S. 13-21-101 interest. Instead, the Bowen plaintiff sought interest under C.R.S. 5-12-102(1), not as part of a calculation of uninsured motorist benefits, but because the uninsured motorist benefits once calculated were not paid when owed.
CONTINUE ON TO PAGE 05
Accordingly, Bowen stands for the proposition that once uninsured motorist benefits are owed, including C.R.S. 13-21-101 interest, an insured is entitled to C.R.S. 5-12-102(1) interest if such benefits are wrongfully withheld by not being paid when due. Bowen in no way stands for the proposition that C.R.S. 13-21-101 interest is not to be included in an insured’s award of uninsured motorist benefits.
UNDER BOWEN, PLAINTIFFS ARE ENTITLED TO C.R.S. 5-12-102(1) INTEREST ON AN AWARD OF UNINSURED MOTORIST BENEFITS THE INSURER DID NOT PAY WHEN OWED, INCLUDING SUCH INTEREST ON THAT PART OF AN AWARD MADE UP OF C.R.S 13-21-101 INTEREST.
As shown in Part I above, C.R.S. 13-21-101 interest is part of the damages which an insured is entitled to recover as part of their claim for uninsured motorist benefits. Therefore, when the amount of uninsured motorist benefits is determined by the fact finder, the court or arbitration panel is obligated to add to that amount C.R.S. 13-21-101 interest. Thereafter, pursuant to Bowen, the court or arbitration panel must make a determination, as a matter of law, of the point back in time when the insurer should have paid its insured the amount of uninsured benefits that have been calculated and award C.R.S. 5-12-102(1) interest on that amount from that point to the date of the award. According to Bowen, this would have been the date that the insurer first refused a demand from its insured for uninsured motorist benefits.17
C.R.S. 5-12-102(1) interest is on the total award of uninsured motorist benefits, including that portion of the award made up of C.R.S. 13-21-101 interest. This is because at that point back in time, the insurer owed to the insured the entire amount of uninsured motorist benefits, not just bits and pieces. This means that the portion of uninsured motorist benefits made up of C.R.S. 13-21-101 interest was just as due and owing at that time as the portion of uninsured motorist benefits made up of pain and suffering or loss of enjoyment of life, and was just as much wrongfully withheld.
An Award of Both C.R.S. 5-12-102(1) and C.R.S. 13-21-101 Interest Does Not Allow for a Double Recovery.
Awarding C.R.S. 5-12-102(1) interest on top of C.R.S. 13-21-101 interest does not constitute a double recovery, but is based on two different and distinct situations. The insurer initially becomes liable for the C.R.S. 13-21-101 interest because as the insurer for uninsured motorist benefits it is stepping into the shoes of the uninsured motorist and must pay to the insured whatever he or she would have been entitled to recover from the tortfeasor. Because the insured would have been able to recover C.R.S. 13-21-101 interest as part of damages from the tortfeasor, so too does the insurer become liable for such interest.
Now, if the insurer had simply paid the uninsured motorist benefits when due, back when the insured had made a demand for such benefits, the only interest the insurer would ever have had to pay would have been C.R.S. 13-21-101 interest. Instead, if the insurer does not pay uninsured motorist benefits at that time, it thereby has wrongfully withheld from its insured those benefits. Accordingly, the insurer additionally becomes liable to its insured for C.R.S. 5-12-102(1) interest at the time it breached the contract of insurance by wrongfully withholding the uninsured motorist benefits, including C.R.S. 13-21-101 interest, from its insured.
CONTINUE ON TO PAGE 06
This distinction between C.R.S. 5-12-102(1) interest and C.R.S. 13-21-101 interest was specifically noted by the Court of Appeals in Herod v. Colorado Farm Bureau Mut. Ins. Co.,18 a bad faith action where an insured was allowed to recover interest of both types from his insurer. On the one hand, the insured was allowed to recover C.R.S. 13-21-101 interest on the emotional distress injury resulting from the insurer’s bad faith “[s]ince these damages were for a personal injury,” and, on the other hand, the insured was also allowed to recover C.R.S. 5-12-102(1) interest because this “equaled the benefit realized by CFB’s wrongful withholding of Herod’s insurance benefits.”19 Therefore, it is clear from Herod that to award both C.R.S. 13-21-101 and C.R.S. 5-12-102(1) interest is to render an award based on two separate acts and represents two distinct grounds for recovery, such that there is no double recovery in the award of both C.R.S. 13-21-101 and 5-12-102(1) interest.
Thus, with respect to C.R.S. 13-21-101 interest, the insurer is liable to its insured due to the acts of the uninsured motorist in causing the insured’s damages. On the other hand, the insurer becomes liable for C.R.S. 5-12-102(1) interest, not because of the acts of the tortfeasor in causing the accident or damages, but because of its own act in wrongfully withholding uninsured motorist benefits from its insured. Accordingly, an award by the court or arbitration panel of both C.R.S. 13-21-101 and C.R.S. 5-12-102(1) interest would not result in a double recovery to the insured.
The Insurer Breaches its Contract with the Insured when it Refuses to Respond to the Insured’s Settlement Demand within 10 Days.
Now, the question is when did the insurer breach its contract with the insured by not paying uninsured motorist benefits when due. In determining that the breach in Bowen occurred when the insurer refused the plaintiff’s demand for uninsured motorist benefits, the court first looked to the policy language, which stated: “We will pay all sums which an insured person is legally entitled to recover as damages from the owner or operator of an uninsured motor vehicle because of bodily injury sustained by the insured person…. Determination as to whether an insured person is legally entitled to recover damages or the amount of damages shall be made by agreement between the insured person and us. If no agreement is reached, the decision will be made by arbitration.”20
CONTINUE ON TO PAGE 07
The court rejected the insurer’s contention that based on this policy language there was no breach since no benefits were due until either there was an agreement between the parties, or there was an arbitration award. Instead, the court concluded that the policy language was ambiguous and, therefore, had to be “construed against the insurer.”21 In so doing, the court recognized that to adopt the insurer’s interpretation “would tend to encourage insurance companies to stall and delay in the payment of claims, thereby frustrating the purpose of the statute.”22 Thus, the court chose to resolve the ambiguity by holding that the wrongful withholding constituting the breach of contract occurred at the time the insurer refused to pay uninsured motorist benefits after the demand by the plaintiff had been made.23 It was from this point that the court found that C.R.S. 5-12-102(1) interest started to run.
The same ambiguity that existed in the policy at issue in Bowen can be found to exist in the policies issued by most other insurers and these policies are, therefore, just as ambiguous as the one in Bowen in terms of when uninsured motorist benefits are due. Therefore, the Bowen analysis will be controlling, such that the insurer owes its insured uninsured motorist benefits at the time it refuses the demand of its insured. The date that an insurer refuses a demand will ordinarily be easy to fix because the insurer will respond within a reasonable period of time, in writing or verbally, informing the insured that either it is making a counter-offer, or is making no offer at all. However, the date of refusal is harder to find when the insurer does not respond to a settlement demand within a reasonable period of time, or at all. Of course, one way to prevent this issue from arising would make a time limited demand, but when this is not done there are other factors to consider in setting the date of refusal.
Under contract law, an offer once made is considered to have lapsed or to have been rejected if it is not accepted within a reasonable period of time.24 The issue then is what constitutes a reasonable period of time? The offer of settlement statute25 provides guidance as to when an insured’s offer should be considered to have been rejected. By virtue of stating that an offer of settlement not accepted within 10 days shall no longer be open, the legislature has expressed the public policy in this state to the effect that settlement offers should be responded to promptly and that 10 days is a reasonable period to allow for acceptance.
CONTINUE ON TO PAGE 08
This public policy encouraging an insurer to respond to the settlement demand of its insured and to pay benefits promptly is further evinced by statute26 which proscribes certain insurer conduct and designates such conduct as “unfair claim settlement practices” which can be used against an insurer to show bad faith.27 For example, an insurer violates this statute by “[f]ailing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies” and by “[n]ot attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.”28
Therefore, a finding that the insurer rejected the demand for uninsured motorist benefits within 10 days of it being made ( plus 3 days for service by mail) would be consistent with both the offer of settlement and the unfair claim settlement practices statutes. Such a finding would also further the purpose behind the uninsured motorist act as set forth in Bowen by not allowing an insurer to benefit from stalling and delaying in the payment of uninsured motorist benefits. In the alternative, it is argued that 30 days from the date of demand should be considered the date of rejection.
This certainly would give an insurer adequate time to evaluate the demand and to respond. At the very latest the date of rejection should be no later than the date that suit was filed, or arbitration demanded. The failure on the part of the insurer to accept the demand by that date constitutes a clear rejection of the demand resulting in a change of circumstance for the insured in that the insured is no longer negotiating, but instead is litigating.
THE BOWEN DISSENT DOES NOT INDICATE THAT THE BOWEN MAJORITY HELD THAT C.R.S. 13-21-101 INTEREST WAS NOT RECOVERABLE AS PART OF UNINSURED MOTORIST BENEFITS.
The dissent in Bowen contained a discussion of the interplay between C.R.S. § 5-12-102(1) and C.R.S. § 13-21-101. Defendants have argued that this discussion stands for the proposition that the majority ruled that only C.R.S. § 5-12-102(1) interest would be recoverable with respect to a claim for uninsured motorist benefits. However, a reading of Judge Briggs’ dissent does not bear this out.
The reason for Judge Brigg’s dissent can be found in his disagreement with the majority over when uninsured motorist benefits were wrongfully withheld and had nothing to do with whether C.R.S. § 5-12-102(1) interest was to be allowed to the exclusion of C.R.S. § 13-21-101 interest. On this point, it was Judge Brigg’s opinion that the insurance policy at issue was not ambiguous and that under the terms of the policy, uninsured motorist benefits were not due until there was an agreement as to the amount owed or an arbitration award was rendered. Accordingly, Judge Brigg’s dissent derived from his dispute with the majority’s conclusion that uninsured motorist benefits became due at the time an insurer rejected the demand of its insured for benefits. In this regard, Judge Brigg’s wrote:
Thus, under the express terms of the insurance contract, the insured is not ‘legally entitled’ to any amounts unless and until an agreement has been reached or an arbitration award rendered. No amount can be ‘wrongfully withheld’ under this provision until the insured is so legally entitled.29
In fact, the dissent expressly recognized that C.R.S. § 13-21-101 interest had already been taken into account by the parties and that the C.R.S. § 5-12-102(1) interest was being awarded on top of C.R.S. § 13-21-101 interest. On this point, Judge Briggs stated: “Although the entire policy is not before us, the parties appear to have assumed that prejudgment interest under § 13-21-101 is part of the damages subject to the UM policy limitations.”30 Accordingly, since the parties had stipulated to damages, the only issue before the court was when C.R.S. § 5-12-102(1) interest would apply with respect to an insurer’s wrongful withholding of uninsured motorist benefits. There never was an issue before the court requiring that it make a decision as to whether C.R.S. § 13-21-101 or C.R.S. § 5-12-102(1) interest would be applied as part of damages to be included in an award of uninsured motorist benefits.
CONTINUE ON TO PAGE 09
So it is in this context that the dissent discusses the interplay between C.R.S. § 5-12-102(1) and C.R.S. 13-21-101 interest, merely to explain when each are applicable. As for C.R.S. § 13-21-101 interest the dissent correctly notes that it accrues from the date of the accident, but only to the extent of the uninsured motorist limits.31 And just as correctly, the dissent observes with respect to C.R.S. § 5-12-102(1) interest, that it accrues from the time of the breach of the contract and that recovery of this form of interest is not confined to the policy limits.32 This is a far cry from saying that Judge Briggs was arguing that C.R.S. § 13-21-101 interest should apply in calculating damages for an award of uninsured motorist benefits, while instead the majority held that C.R.S. § 5-12-102(1) interest was the proper measure to use in determining such damages.
This also explains why nowhere in the Bowen majority opinion is C.R.S. § 13-21-101 ever mentioned, since all the majority was attempting to determine was the date that the wrongful withholding of uninsured motorist benefits occurred so that they could hold when interest would begin to run under C.R.S. § 5-12-1-2(1) for the wrongful withholding. Thus, the dispute between the majority and dissent in Bowen was only as to whether the date of the wrongful withholding was the date of the rejection of the insured’s demand for benefits or the date of the arbitration award and there just never was a dispute over what interest statute to apply in calculating prejudgment interest as part of damages for an award of uninsured motorist benefits.
In seeking to recover C.R.S. § 5-12-102(1) interest, in addition to C.R.S. 13-21-101 interest, it can be expected that the insurer will raise other arguments to avoid the interest penalty on its withholding of uninsured motorist benefits from its insured. For instance, the insurer may argue that C.R.S. § 5-12-102(1) interest is not owed since there was no bad faith involved in the withholding of benefits, such that there was not a “wrongful” withholding. Or, the insurer might argue that such interest should be reduced by taking into account the amount of the insurer’s offer to settle. The insurer might also argue that it is not obligated to pay C.R.S. § 5-12-102(1) interest if the insured did not receive an award of uninsured motorist benefits which equaled or exceeded the insured’s own settlement demand. It is submitted that each of these contentions lack merit.
The Breach of the Contract by the Insurer in not Paying Uninsured Motorist Benefits When Due Constitutes a Wrongful Withholding and a Party’s Good Faith, if any, in Withholding Payment is not a Defense.
CONTINUE ON TO PAGE 10
C.R.S. 5-12-102(1) interest is triggered whenever money “has been wrongfully withheld.” This simply means that money has been kept by someone who was not entitled to keep it, but was instead obligated to pay it over to someone else. There is nothing that requires that an improper motive be shown and good faith is not a defense.
This is why in Bowen it was only necessary for the plaintiff to prove a breach of the insurance contract by virtue of the insurer not paying underinsurance benefits when demanded by the plaintiff. Thus, the insurer wrongfully withheld money from its insured and was, therefore, ordered to pay C.R.S. 5-12-102(1) interest only because it breached its contract by not paying money to its insured when due and not because the insurer acted in bad faith or had an improper motive.
This is no different from a business loan where the borrower does not pay the loan back when due because of a mistaken good faith belief that the money is not owed for one reason or another. Once it has been determined that the borrower did, indeed, owe the money, the borrower is liable to the lender for C.R.S. 5-12-102(1) interest from the date the loan was due because the borrower has wrongfully withheld money belonging to another and the good faith reasons for doing so are beside the point. The borrower cannot be allowed to have the time benefit of keeping money that did not belong to him or her and must give back that benefit by paying the lender C.R.S. 5-12-102(1) interest accruing from the date the money was due the lender. Likewise, the insurer cannot be allowed the time benefit of keeping money that did not belong to it and must pay that benefit back to its insured in the form of C.R.S. 5-12-102(1) interest.
There Should be no Reduction in C.R.S. § 5-12-102(1) Interest in Consideration for the Insurer’s Offer to Settle.
It has been argued that C.R.S. § 5-12-102(1) interest should be figured based on the total award minus the amount that was offered by the insurer and rejected by the insured. There is no authority known for this and it is contrary to the Bowen decision where interest was allowed on the entire award, without subtraction for any offer to settle that had been made. Furthermore, when the insurer’s offer turns out to be less than the amount of the award of uninsured motorist benefits, it is
in essence illusory. This is because it does not allow an insured to accept the insurer’s less than full value offer and still retain the right to pursue the rest of his or her damages in an action for uninsured motorist benefits. Therefore, as is demonstrated by an award that is greater than the insurer’s offer, the amount offered would not have fairly compensated the insured and could not have been accepted absent forfeiture of substantial benefits to which the insured was entitled. Under these circumstances the effect of making a less than full value offer would be the same as making no offer at all and the insured should not be penalized for not accepting an offer that does not provide for full compensation, nor should the insurer benefit from making such an offer.
More to the point is that the total amount of benefits was wrongfully withheld and the fact that less than full value was offered does not change this, nor would an offer of less than full value have satisfied the insurer’s obligation. Again, in the business context, it is like saying that if someone makes a business loan for a certain amount and then refuses an offer of less than that amount as payment in full, then the lender should only receive interest on the amount loaned less the borrower’s offer to settle once a verdict is returned finding that the full amount loaned is owed.
CONTINUE ON TO PAGE 11
The insurer, just like the borrower, is obligated to pay the full amount owed and cannot avoid the fact that the entire amount has been wrongfully withheld simply by making an offer to pay back part of the amount owed as payment in full. Accordingly, the insurer cannot escape responsibility for having to pay C.R.S. § 5-12-102(1) interest on the full amount of uninsured motorist benefits awarded.
An Insured’s Offer to Settle which Exceeds the Amount of Uninsured Motorist Benefits Awarded Does Not Absolve the Insurer from its Obligation to Pay C.R.S. § 5-12-102(1) Interest.
An insurer may also claim that no C.R.S. § 5-12-102(1) prejudgment interest should be awarded when the insured makes a demand for uninsured motorist limits in excess of what was awarded. Again, authority for this proposition is unknown and in Bowen the determination of a wrongful withholding was not based on whether the amount of uninsured motorist benefits awarded exceeded the offer. Instead it was based on the fact that uninsured motorist benefits were owed by the insurer from the time of the insured’s demand for benefits and the benefits owed were not paid at that time.
A holding that the amount of the insured’s offer is irrelevant to the insurer’s interest obligation would be consistent with Colorado statute. Under Colorado law an insured owes no obligations to its insurer concerning how the insured must conduct settlement negotiations concerning benefits. On the other hand, Colorado statute provides that it is an unfair insurance practice act and evidence of bad faith for an insurer not to make reasonable attempts to settle a claim once liability is reasonably clear and to offer substantially less to settle a claim than would be reasonable.33 These duties imposed on the insurer are independent of anything the insured might or might not do and no corresponding statutory obligation is placed upon the insured.
Regardless of the insured’s offer, the fact is that whatever has been awarded in uninsured motorist benefits must be considered to have been wrongfully withheld by the insurer because it belonged to the insured and was not the insurer’s to keep. Even where the insured offers to settle for more than it is eventually determined that the insurer is obligated to pay, it does not change the fact that the amount awarded was still owed by the insurer at the time it rejected the demand for uninsured motorist benefits and the insurer was not relieved of this obligation simply because the amount of the insured’s demand exceeded what was owed. Therefore, by rejecting the insured’s demand, without offering to provide uninsured motorist benefits in the amount that was owed, the insurer has wrongfully withheld money due to the insured from that point on.
To hold otherwise would be like saying, if there was a dispute over how much was due under a business loan and by verdict it was determined what was owed, that the lender would not be entitled to receive prejudgment interest thereon in the event he had demanded repayment in an amount greater than what was owed. In such a situation the debtor would still be obligated to pay prejudgment interest on the total amount owed even if the lender had demanded more. The amount of the insured’s demand simply does not change the fact that an amount certain was owed and payment of that amount was wrongfully withheld by the insurer.
CONTINUE ON TO PAGE 12
An insured is entitled to C.R.S. 13-21-101 interest as part of an award of uninsured motorist benefits. The Bowen decision does not stand as precedent to the contrary, but rather mandates that an insured is entitled to C.R.S. § 5-12-102(1) interest on an award of uninsured motorist benefits, including that part thereof made up of C.R.S. § 13-12-101 interest, from the date of the insurer’s wrongful withholding of such benefits. This does not constitute a double recovery because an award of interest under each of these statutes derives from separate obligations. An accurate reading of the Bowen dissent confirms this and would not support the argument that the majority was deciding that C.R.S. § 5-12-102(1) interest was the only interest applicable to an uninsured motorist claim to the exclusion of C.R.S. § 13-21-101 interest as part of the insured’s damages.
As for C.R.S. § 5-12-102(1) interest, it begins to accrue on the date the insurer refuses the insured’s demand for uninsured motorist benefits and where there is no response from the insurer the date of refusal should be considered to be 10 days after service of the demand. The insurer’s motive in refusing the insured’s demand for benefits is irrelevant to its obligation to pay this interest inasmuch as the insurer has “wrongfully” withheld money from its insured merely by not paying benefits when due. Nor can the insurer reduce or eliminate its obligation to pay C.R.S. § 5-12-102(1) interest based on either its own offer to settle the insured’s uninsured motorist claim or the amount of the insured’s demand.
Now, having worked through the law and logic supporting a recovery of 17% interest on an uninsured motorist claim, it is evident that this proposition is not as off the wall as it may have first seemed. In fact, it would appear to be the law. In the past, an issue like this would have been left to arbitrators to decide and most arbitration panels would probably have ruled against a recovery of both C.R.S. § 5-12-102(1) and C.R.S. § 13-21-101 interest due to their conservative nature in not wanting to extend the law beyond already published opinions. There would have been no right of appeal and even if a favorable decision was rendered, it would only be applicable to that one case. On the other hand, the higher courts of Colorado have not demonstrated the same reluctance to uphold novel arguments and their opinions impact all cases. Thus, ironically, the decision of some insurers to eliminate the arbitration provision applicable to uninsured motorist claims from their policies because they felt they could do better with juries then with arbitrators will allow appeals of legal issues that may turn out to cost these insurers in ways they never imagined. ________________________
Stephen C. Kaufman is a shareholder in the law firm of Kidneigh & Kaufman, P.C., practicing plaintiffs personal injury, medical malpractice, and products liability law.
Those wishing to submit articles for publication in the Tort and Insurance section of Trial Talk should send them to Stephen C. Kaufman, 650 South Cherry Street, Suite 820, Denver, Colorado 80246.
1.1. Garceau v. Iowa Kemper Ins. Co., 859 P.2d 243 (Colo. App. 1993).
2.2. State Farm Mut. Auto. Ins. Co. v. Tye, 931 P.2d 540 (Colo. App. 1996); State Farm Auto. Ins. Co. v. McMillan, 900 P.2d 1243 (Colo. App. 1994), affirmed 925 P.2d 785 (Colo. 1996); Cung La v. State Farm, 830 P.2d 1007 (Colo. 1992).
3. State Farm Mut. Auto. Ins. Co. v. Tye, 931 P.2d 540 (Colo. App. 1996).
4. C.R.S. § 10-4-609.
5. 929 P.2d 14 (Colo. App. 1996).
6. C.R.S. § 10-4-609(1).
7. C.R.S. § 10-4-609(4).
8. Allstate Ins. Co. v. Starke, 797 P.2d 14, 18 (1990).
9. Id. at 19.
10. Kral v. American Hardware Mut. Ins. Co., 784 P.2d 759, 762 (Colo. 1989).
11.11. Garceau v. Iowa Kemper Ins. Co., 859 P.2d 243, 245 (Colo. App. 1993)(citing in support Barnett v. American Family Mutual Insurance Co., 843 P.2d 1302 (Colo. 1993); Terranova v. State Farm Mutual Automobile Insurance Co., 800 P.2d 58 (Colo. 1990); Newton v. Nationwide Mutual Insurance Co., 197 Colo. 462, 594 P.2d 1042 (Colo. 1979); Alliance Mutual Casualty Co. v. Duerson, 184 Colo. 117, 518 P.2d 1177 (1974); and Morgan v. Farmers Insurance Exchange, 182 Colo. 201, 511 P.2d 902 (1973)).
12. American Family Mutual Insurance Co. v. Johnson, 816 P.2d 952 (Colo. 1991).
13. 929 P.2d 14 (Colo. App. 1996).
14. Id. at 16.
15. Id. at 16-17.
17. Id. at 17.
18. 928 P.2d 834 (Colo. App. 1996).
19. Id. at 838.
20. Bowen, 929 P.2d at 16.
23. Id. at 17.
24.24. Central Invest. Corp. of Denver v. Container Adv. Co., 471 P.2d 647, 648 (Colo. App. 1970).
25. C.R.S. § 13-17-102.
26.26. C.R.S. § 10-3-1104(1)(h).
27.27. C.R.S. 10-3-1113(1),(4).
28. C.R.S. § 10-3-1104(1)(h)(II) and (V).
29. Bowen, 929 P.2d at 17.
30. Id. at 18.
33. C.R.S. § 10-3-1104(1)(h)(VI),(VII); C.R.S. § 10-3-1113.
Filed under: Articles by Steve Kaufman
Like this post? Subscribe to my RSS feed and get loads more!