In an earlier post (Part I – 11/30/2010), I introduced the background of this case. It involves a nonresident passenger severely injured in an auto accident who was omitted in the settlement by the driver’s insurance company. Claiming that the insurance company refused in bad faith to settle with her for the $100,000 in remaining insurance coverage, the nonresident passenger then sued the driver. The insurance company undertook defense of the case.
While the case was pending, the plaintiff and the driver entered into
an agreement whereby an agreed judgment in the amount of $4 million was
entered against the driver and the driver assigned (transferred) to the
passenger any bad faith claim he had against his insurance company. The
agreement provided that the passenger would not attempt to enforce the
judgment against the driver. The insurance company, which had internally
evaluated the passenger’s damages at between $2 million and $5 million,
authorized its insured driver to enter into the agreement.
The passenger then sued the driver’s insurance company for an alleged
bad faith refusal to settle her claim within the insurance policy limits.
One of the insurance company’s defenses was that even assuming there
was any bad faith on its part, the passenger could not prove that the
insured driver suffered any monetary damage– a fundamental requirement
for a successful bad faith claim– since the passenger had agreed
that she would not enforce the $4 million judgment against the driver.
On that basis, the trial court dismissed the passenger’s claim and
the Colorado Court of Appeals affirmed the judgment.
The Colorado Supreme Court overturned the court of appeals decision by
a 4-3 vote, saying that the pretrial assignment of the alleged bad faith
insurance claim and the entry of the agreed judgment, with an agreement
not to enforce the judgment, were recognized as valid in Colorado, assuming
the judgment amount was reasonable and not collusive. The mere entry of
the agreed judgment was sufficient to satisfy the requirement of proof
that the driver was damaged, assuming that the other elements of bad faith
refusal to settle within policy limits can be proved. And even if the
amount was not reasonable, the injured plaintiff still has the right to
prove the actual amount of damages in a trial.
The case will be returned to the trial court for further proceedings,
which may result in a settlement or a trial before a jury.