Spendrup et al v. American Family Mutual Insurance Company

Filing 55

ORDER granting 32 Defendant's Motion for [Partial] Summary Judgment Pursuant to F.R.C.P. 56(c). When final judgment is entered in this case, judgment shall enter in favor of Defendant and against Plaintiff as to Plaintiff's statutory bad faith claim. By Magistrate Judge Kristen L. Mix on 1/29/14.(mfiel, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 13-cv-00513-KLM
MARY E. SPENDRUP, individually and on behalf of Quentin O. Spendrup,
Plaintiff,
v.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin corporation,
Defendant.
______________________________________________________________________
ORDER
______________________________________________________________________
ENTERED BY MAGISTRATE JUDGE KRISTEN L. MIX
This matter is before the Court on Defendant’s Motion for [Partial] Summary
Judgment Pursuant to F.R.C.P. 56(c) [#32]1 (the “Motion”). On December 20, 2013,
Plaintiff filed a Response [#43]. On January 10, 2014, Defendant filed a Reply [#50]. The
Court has reviewed the Motion, the Response, the Reply, the entire docket, and the
applicable law, and is sufficiently advised in the premises. For the reasons set forth below,
the Motion [#32] is GRANTED.
I. Background
This dispute stems from a March 5, 2009 automobile accident involving Plaintiff’s
husband, Quentin O. Spendrup (“Mr. Spendrup”) and a third party, which resulted in the
death of Mr. Spendrup. Am. Compl [#49] at ¶¶ 41-42; Answer [#13] ¶ 2. Plaintiff accepted

1

“[#32]” is an example of the convention I use to identify the docket number assigned to
a specific paper by the Court’s case management and electronic case filing system (CM/ECF). I
use this convention throughout this Order.

1

an offer of settlement for the third party driver’s liability. Am. Compl [#49] at ¶¶ 49-50;
Answer [#13] ¶ 2. In this lawsuit, Plaintiff seeks payment of underinsured motorist (“UIM”)
benefits from Defendant under various insurance policies issued by Defendant to Plaintiff,
Mr. Spendrup, and their son, Zedadiah O. Spendrup. Am. Compl [#49] at ¶¶ 12, 15-20, 2528, 51, 53; Answer [#13] ¶ 2. Plaintiff asserts the following claims against Defendant:
negligence, negligence per se pursuant to Colo. Rev. Stat. § 42-4-603, negligence per se
pursuant to Colo. Rev. Stat. § 42-4-703, negligence per se pursuant to Colo. Rev. Stat. §
42-4-605, negligence per se pursuant to Colo. Rev. Stat. § 42-4-1402, breach of contract,
and statutory bad faith pursuant to Colo. Rev. Stat. § 10-3-1115(2). Am. Compl. [#49] at
6-12. With regard to each of the negligence claims, Plaintiff alleges that “Defendant . . . as
[P]laintiff’s underinsured motorist carrier is responsible for the uncompensated damages
caused by [the third-party driver] and has refused to pay . . . .” See, e.g., id. at 7. Plaintiff
seeks a declaratory judgment regarding her rights under the insurance contracts, damages,
interest, fees, and costs. Id. at 12-13.
II. The Motion
In the Motion, Defendant seeks summary judgment on Plaintiff’s bad faith claim.
Defendant argues that Plaintiff’s filing of the instant litigation suspended its obligation to pay
disputed amounts under Plaintiff’s UIM benefit claim. Motion [#32] at 5-7. In support of
that argument, Defendant maintains that prior to and at the time of the filing of this lawsuit,
a genuine disagreement existed as to the amount of compensable damages payable to
Plaintiff for her UIM claims. Id. at 7-10.
In her Response, Plaintiff argues that her bad faith claim is based solely on
Defendant’s failure to pay “undisputed amounts of benefits” under the applicable insurance
2

policies. Response [#43] at 6. Plaintiff bases this argument on the expert valuations of
Plaintiff’s damages exchanged by the parties, deposition testimony of an employee of
Defendant regarding statutory noneconomic losses, and certain internal valuations by
Defendant that value Plaintiff’s claim below the range provided by Defendant’s expert. Id.
at 6-9. Plaintiff also mentions a settlement offer made by Defendant to Plaintiff. Id. at 1213. She further argues that Defendant is not entitled to summary judgment on her bad faith
claim even if the claim is “fairly debatable.” Id. at 9-13. Plaintiff maintains that “there is a
genuine issue as to the material fact of whether or not [Defendant] had a reasonable basis
for denial and delay of undisputed benefits under [Plaintiff’s] insurance policies” and that,
therefore, a jury could conclude that Defendant’s failure to pay the allegedly undisputed
amount of benefits was unreasonable. Id. at 12-13.
In its Reply, Defendant revisits its arguments in favor of summary judgment and
attacks Plaintiff’s argument that Defendant should have paid allegedly undisputed
insurance policy benefits. The Court notes that Defendant focuses most of its Reply on
Plaintiff’s use of a settlement offer made by Defendant. As Defendant notes, Fed. R. Evid.
408 prohibits the use of settlement offers “to prove or disprove the validity or amount of a
disputed claim . . . .” Fed. R. Evid. 408(a). Accordingly, the Court does not address the
alleged settlement offer and does not consider any information relating to offers to settle
included in the documents submitted by the parties. See, e.g., Motion, Ex. E [#32-4]. With
regard to Plaintiff’s allegation that Defendant should have paid some amount of the UIM
benefits based on the expert valuations of damages exchanged by the parties, Defendant
argues that Plaintiff offers no legal authority for her arguments and, instead, “rests
exclusively on the legal argument of her counsel . . . .” Reply [#50] at 2.
3

III. Standard of Review
The purpose of a motion for summary judgment pursuant to Fed. R. Civ. P. 56 is to
assess whether trial is necessary. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
Under Fed. R. Civ. P. 56(c), summary judgment shall be granted if “the pleadings, the
discovery and disclosure materials on file, and any affidavits show that there is no genuine
issue as to any material fact and that the movant is entitled to judgment as a matter of law.”
An issue is genuine if the evidence is such that a reasonable jury could resolve the issue
in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
A fact is material if it might affect the outcome of the case under the governing substantive
law. Id.
The burden is on the movant to show the absence of a genuine issue of material
fact. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670-71 (10th Cir. 1998) (citing Celotex,
477 U.S. at 323). When the movant does not bear the ultimate burden of persuasion at
trial, the “movant may make its prima facie demonstration [of the absence of a genuine
issue of material fact] simply by pointing out to the [C]ourt a lack of evidence for the
nonmovant on an essential element of the nonmovant’s claim.” Id. at 671. If the movant
carries the initial burden of making a prima facie showing of a lack of evidence, the burden
shifts to the nonmovant to put forth sufficient evidence for each essential element of his
claim such that a reasonable jury could find in his favor. See Anderson, 477 U.S. at 248;
Simms v. Okla. ex rel. Dep't. of Mental Health & Substance Abuse Servs., 165 F.3d 1321,
1326 (10th Cir. 1999). The nonmovant must go beyond the allegations and denials of his
pleadings and provide admissible evidence, which the Court views in the light most
favorable to him. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Panis v. Mission
4

Hills Bank, N.A., 60 F.3d 1486, 1490 (10th Cir. 1995) (citing Celotex, 477 U.S. at 324).
Conclusory statements based merely on conjecture, speculation, or subjective belief are
not competent summary judgment evidence. Bones v. Honeywell Int’l., Inc., 366 F.3d 869,
875 (10th Cir. 2004).

The nonmoving party’s evidence must be more than “mere

reargument of [the] case or a denial of an opponent's allegation” or it will be disregarded.
See 10B Charles Alan Wright, et al., Federal Practice and Procedure § 2738 at 356 (3d
ed.1998).
IV. Material Undisputed Facts
The parties offer competing material undisputed facts.

After a review of the

pleadings and supporting documents offered by the parties, the Court finds that the
following are material undisputed facts relating to the Motion.
•

In December 2010, with Defendant’s consent, Plaintiff accepted $985,000 in
settlement of her claims against the third party driver. See Motion, Exs. C [#32-2],
D [#32-3]; see also Am. Compl [#49] at ¶¶ 49-50; Answer [#13] ¶ 2; Motion [#32] at
3; Response [#43] at 3.

•

On September 27, 2011, Defendant sent Plaintiff an analysis stating that, according
to its expert, her damages totaled $822,873-$1,275,602. See Response, Ex. 2
[#43-2] (“September 2011 Valuation”) at § I.

•

Plaintiff initiated this litigation on March 5, 2012 in state court. See Compl. [#1-6]
at 13; see generally State Court Docket Sheet [#1-4].2
V. Analysis
Pursuant to Colo. Rev. Stat. § 10-3-1115, an insurer “shall not unreasonably delay

or deny payment of a claim for benefits owed to or on behalf of any first-party claimant.”
Colo. Rev. Stat. § 10-3-1115(1)(a). The statute states that “an insurer’s delay or denial was

2

On February 27, 2013, Defendant removed the case to federal court based on diversity
jurisdiction, 28 U.S.C. § 1332. See generally Defendant’s Notice of Removal of Action [#1].

5

unreasonable if the insurer delayed or denied authorizing payment of a covered benefit
without a reasonable basis . . . .” Colo. Rev. Stat. § 10-3-1115(2). “What constitutes
reasonableness under the circumstances is ordinarily a question of fact for the jury.
However, in appropriate circumstances, as when there are no genuine issues of material
fact, reasonableness may be decided as a matter of law.” Vaccaro v. Am. Family Ins. Grp.,
275 P.3d 750, 759 (Colo. App. 2012).; see also Baker v. Allied Prop. & Cas. Ins. Co., 939
F.Supp.2d 1091, 1108 (D. Colo. 2013).
Defendant argues that its duty of good faith and fair dealing was suspended by this
litigation and that, as a result, it had no duty to advance payment to Plaintiff. In Bucholtz
v. Safeco Ins. Co. of Am., 773 P.2d 590, 593 (Colo. App. 1988), the Colorado Court of
Appeals held that summary judgment was properly granted on plaintiff’s claims for bad faith
breach of an insurance contact because the plaintiff demanded arbitration, thereby
suspending the insurance company’s duty to negotiate settlement. The court stated:
“[A]lthough the insurer’s duty of good faith and fair dealing continues unabated during the
life of the insurer-insured relationship, any obligation to negotiate as a reflection of good
faith may be suspended temporarily by collateral circumstances.” Id. at 592. The court
found that a request for arbitration was such a circumstance. Id. at 593. “The court also
found that there must be a ‘genuine disagreement’ as to the amount of compensable
damages payable for there to be an effective suspension of the insurer’s duty.” Toy v. Am.
Family Mut. Ins. Co., 12-cv-01683-PAB-MJW, 2012 WL 5290266, at *1 (D. Colo. Oct. 26,
2012) (citing Bucholtz, 773 P.2d at 593 and Vaccaro, 275 P.3d at 759). As this Court has
previously found, “where an adversarial proceeding is filed and a genuine disagreement as
to the amount of compensable damages exists, the duty to negotiate is suspended, and
6

there is no duty to advance payment of claims.” Baker, 939 F.Supp.2d at 1109 (emphasis
added) (citing Rabin v. Fidelity Nat’l Prop & Cas. Ins. Co., 863 F.Supp.2d 1107, 1113 (D.
Colo. 2012)).
Here, there is no question that an “adversarial proceeding” was filed on March 5,
2012. The dispute is whether there was a genuine disagreement as to the amount of
compensable damages at that time. From Defendant’s perspective, the parties have not
agreed to any amount of damages and the purpose of this litigation is to determine that
amount. However, Plaintiff takes the position that the UIM benefits range specified in
Defendant’s expert’s report should be added to $436,070 in statutory noneconomic
damages which Plaintiff believes she is owed. See Response [#43] at 7. Therefore,
Plaintiff argues that there is a range of damages on which the experts allegedly agree that
is undisputed. See Id. (“Plaintiff asserts that a jury could find that not only was it
unreasonable for American Family to deny Plaintiff the minimum amount of $273,943 but
could find that it was unreasonable for Defendant not to pay the high end of Defendant’s
undisputed evaluation of $726,672.”).
As an initial matter, Plaintiff’s argument that $436,070 in noneconomic losses should
be added to the valuation range provided by Defendant’s expert fails as a matter of law.
Plaintiff cites to Colo. Rev. Stat. § 13-21-205(1). Id. at 2, 7. This appears to be an
incorrect citation as there is no Colo. Rev. Stat. § 13-21-205. The statute governing
noneconomic loss is Colo. Rev. Stat. § 13-21-102.5 which, as revised, sets the recovery
cap for claims brought pursuant to § 13-21-203(1) at $436,070. However, recovery of
noneconomic losses pursuant to § 13-21-203(1) is contingent on the Court finding that such
an award is justified “by clear and convincing evidence . . .” Colo. Rev. Stat. § 13-217

203(1)(3)(b). Plaintiff’s assumption that the maximum amount of potential noneconomic
damages is undisputed because one of Defendant’s employees stated in her deposition
that she thought Plaintiff was entitled to the maximum amount allowed under the statute
and that such an amount, therefore, should be added to Defendant’s expert’s valuation is
erroneous. See Response [#43] at 4, 7. Testimony of an opinion of a single representative
of Defendant does not amount to clear and convincing evidence that the full amount of
noneconomic damages should be awarded. Accordingly, the Court will not consider the
noneconomic damages alleged by Plaintiff as an undisputed amount. As a result, the only
remaining issue is whether any amount of the UIM benefits valuation provided by
Defendant’s expert is undisputed.
Colorado insurance regulations provide helpful insight into this issue. 3 C.C.R. 7025:5-1-14 governs penalties for an insurance company’s failure to promptly address firstparty claims, like those asserted here. It states:
All insurers authorized to write property and casualty insurance policies in
Colorado, shall make a decision on claims and/or pay benefits due under the
policy within sixty (60) days after receipt of a valid and complete claim unless
there is a reasonable dispute between the parties concerning such claim, and
provided the insured has complied with the terms and conditions of the policy
of insurance.
Under the statute, a “valid and complete claim” is deemed “received” by the insurer when,
among other things, “[n]egotiations or appraisals to determine the value of the claim have
been completed; and/or . . . [a]ny litigation on the claim has been finally and fully
adjudicated.” Id. § 4(A)(2)(a). Further, a “reasonable dispute” may include, among other
things, the commencement of litigation or the existence of “[c]onflicting information” that
necessitates additional investigation. Id. § 4(A)(2)(b).
8

In the instant case, litigation regarding the amount of damages, if any, due to Plaintiff
is ongoing and the experts have offered conflicting opinions regarding the value of Plaintiff’s
claims.

Further, at the time Plaintiff commenced this dispute, Defendant’s expert’s

valuation of Plaintiff’s damages was $822,873-$1,275,602. See September 2011 Valuation
[#43-2] at § I; see also Toy, 2012 WL 5290266, at *2 (resolving discovery dispute and
stating “the issue before the court is whether there was a genuine dispute at the time
plaintiff made his arbitration demand”).3 As the basis for damages, Plaintiff alleges that
“Defendant . . . as [P]laintiff’s underinsured motorist carrier is responsible for the
uncompensated damages caused by [the third-party driver] and has refused to pay . . . .”
Am. Compl. [#49] at 7. In other words, Plaintiff seeks damages from Defendant for any
amount of damages in excess of $985,000, the amount of the settlement with the thirdparty driver. The only defense valuation that pre-dates the initiation of this litigation and
that has been provided to the Court presents a damages range of $822,873-$1,275,602.
See September 2011 Valuation [#43-2] at § I. Clearly, the low end of this estimate is below
the settlement amount of $985,000, which indicates that Defendant’s position at the time
the litigation was initiated is that it did not owe Plaintiff any UIM benefits.4 Plaintiff admits
that the estimate of $822,873-$1,275,602 does not include the $985,000 settlement amount
by asserting in her Response that the $985,000 settlement amount should be subtracted

3

Plaintiff’s argument that the Court should consider valuations completed and exchanged
as part of discovery after the initiation of the instant litigation is contrary to the Court’s findings in
Toy.
4

A valuation range, by definition, does not mean that the party offering the range should
be held to one particular amount within the range. Accordingly, for the limited purpose of deciding
the Motion, the Court assumes without deciding that the amount to which Defendant can be alleged
to have “agreed” is the low end of the range.

9

from the expert’s range. Response [#43] at 7. Therefore, the Court finds that at the time
this litigation was initiated, there was a genuine disagreement as to the amount of
compensable damages and the parties had not reached agreement as to any amount of
damages allegedly owed to Plaintiff. As a result, the Court finds that Defendant did not
have a duty to advance payment of any amount to Plaintiff. In the absence of such a duty,
Plaintiff’s bad faith claim cannot survive. See Baker, 939 F.Supp.2d at 1109. Accordingly,
the Motion [#32] is GRANTED.
VI. Conclusion
IT IS HEREBY ORDERED that the Motion [#32] is GRANTED.
IT IS FURTHER ORDERED that when final judgment is entered in this case,
judgment shall enter in favor of Defendant and against Plaintiff as to Plaintiff’s statutory bad
faith claim.
Dated: January 29, 2014

10