Sunahara v. State Farm Mutual Automobile Insurance Co.

Chief Justice BENDER,

concurring in part and dissenting in part.

132 I agree with the majority's holding that the court of appeals incorrectly applied the collateral source rule. However, I write separately because I respectfully disagree with the majority's holding in Part III of its opinion that the unredacted portions of Suna-hara's claim file were not discoverable. For the reasons discussed below, I would remand for retrial on the issues of liability and damages. Hence, I concur in part and dissent in part.

33 The majority acknowledges that this case is factually distinct from our decision in Silva v. Basin Western, Inc., 47 P.3d 1184 (Colo.2002), but nonetheless holds that the reasoning underlying Silva supports its conclusion that an insured's own claim file is non-discoverable in an action to recover uninsured motorist (UIM) benefits from his insurer. I agree with the majority that in so-called "third-party" claims,1 Silva can likely be extended to bar the discovery of information that is the basis for determining reserves and settlement authority (e.g. Hability assessments, fact recitations, and related information). Maj. op. 1125-26. However, because I believe that the present claim is a "first-party" claim of the type that was expressly excluded from our decision in Silva, I would hold that the information in State Farm's claim file, including State Farm's statement that Mallard (the defendant in the first action) was 100 percent at fault and Sunahara was 0 percent at fault, was discoverable. Because this admission of State Farm, a party-opponent in the present dispute, would likely have been admissible at trial, it may have impacted the jury's deter*659mination of comparative fault. Thus, I would remand the case for a new trial on the issues of both liability and damages, rather than just damages as held by the majority. See id. at 4 31.

134 In Silva, we held that an injured plaintiff in a third-party personal injury case could not discover the defendant's insurer's reserve and settlement authority. 47 P.3d at 1193. We concluded that in the context of a third-party personal injury claim, such information, as a matter of law, was not "reasonably calculated to lead to admissible evidence." Id. We based this on the grounds that such information: (1) does not accurately reflect the insurer's valuation of a particular claim; (2) does not constitute an admission of liability; and (8) is prepared by an insurance company solely to fulfill a statutory duty and to establish bargaining tactics for agents attempting to settle claims. See id. at 1189. We held, however, that this rationale was only sufficient to justify a bar on discovery of an insurance claim file prepared by the defendant's insurance company in a third-party action. Id. at 1191-92. Silva explicitly contrasted the third-party claim at issue in that case with discovery in a first-party claim and acknowledged that "[the scope of discovery of insurance information should be broader in a first-party claim between an insured party and his insurer than in a third-party personal injury claim." Id. at 1192.

135 To that end, in Tayler v. Travelers Ins. Co., 183 F.R.D. 67, 72 (N.D.N.Y.1998), the case that we cited in Silva to draw a distinction between discoverability in first-party actions and non-discoverability in third-party actions, the federal district court for the Northern District of New York flatly rejected the holding that the majority now reaches. There, on similar facts to the present case, an injured driver first sued another driver for his personal injuries. Id. at 68. That initial suit ultimately settled for the maximum of the other driver's insurance coverage. Id. Because the injured driver's injuries exceeded this amount, he sought to recover his remaining damages under the UIM provision of his insurance policy, which eventually resulted in litigation between the driver and his insurer. Id. In this UIM action, the driver sought to discover the claim file that his insurer had compiled in response to his initial claim. Id. When his insurer refused to release the file, the driver filed a motion to compel. Id.

11 36 In ordering the insurance company to produce the claim file, the Tayler court reasoned that a first-party claim for UIM benefits was distinguishable from third-party claims where such information was found to be non-discoverable. Id. at 71. The court explained that unlike third-party claims, which are essentially personal injury claims based in tort, a first-party UIM claim arises under contract because a first-party UIM claim alleges that the insurer failed to comply with its contractual obligation to make the insured whole in the event that the liable party has insufficient resources and/or insurance coverage to do so itself. Id. at 70-71. In a first-party claim, "the insured 'is asking for payment under the terms of the insurance contract between him and the insurance company, and the insurance company owes [the insured] a duty to adjust his claim in good faith.'" Id. (quoting Weitzman v. Blazing Pedals, Inc., 151 F.R.D. 125, 126 (D.Colo.1998)).

137 The majority holds that a first-party UIM claim is distinguishable from a first-party bad faith claim. Maj. op. (928-29. In my opinion, in this context, there is no distinction between a first-party claim that an insurer adjusted the insured's claim in bad faith and a first-party UIM claim. Each claim involves bad faith and each claim derives under the terms of the insurance contract. Hence, I agree with the reasoning of the Tayler court, which we expressly acknowledged and cited in Silva. Because a first-party UIM claim is akin to a contract action, the responsibility of the insurer is to act in good faith and fulfill its contractual obligations and not to "stand[ ] in the shoes of the uninsured motorist." CJ maj. op. 1 28. As such, I believe that the insurer's initial investigation, impressions, and conclusions regarding fault and damages are relevant, as a matter of law, to subsequent UIM litigation. See also Lipton v. Superior Court, 48 Cal.App.4th 1599, 1614, 56 Cal.Rptr.2d 341 *660(1996) (statutorily required loss reserve relevant to first-party bad faith claim); North River Ins. Co. v. Greater New York Mut. Ins. Co., 872 F.Supp. 1411, 1412 (E.D.Pa.1995) (same); Champion Int'l Corp. v. Liberty Mut. Ins. Co., 128 F.R.D. 608, 612 (S.D.N.Y.1989) (same).

{ 38 Here, in the initial personal injury suit filed by Sunahara against Mallard, State Farm unequivocally maintained that Mallard was completely at fault. State Farm noted in the unredacted portion of Sunahara's claim file that Mallard was 100 percent at fault. State Farm also sent a letter to Mallard's insurance carrier stating: "Our investigation establishes that your insured is responsible for the accident.2 However, onee Mallard's insurance was exhausted-and it became clear that Sunahara would invoke the UIM coverage under his State Farm policy-State Farm immediately changed its tune and claimed that Sunahara was at least partially at fault for the very same accident. Thus, State Farm was either disingenuously inflating Sunahara's initial claim against Mallard, which would violate the requirement that it reasonably estimate its potential liability in setting a reserve, see Silva, 47 P.8d at 1189, or it was acting in bad faith in adjusting the UIM claim of its insured, Sunahara.

T39 The jury did not hear evidence that State Farm previously determined that Mallard was 100 percent at fault. Ultimately, the jury returned a verdiet that Mallard was only 50 percent responsible for Sunahara's injuries. The jury concluded that the remaining fault was split equally by Sunahara and his son, who was also present at the scene of the accident. Accordingly, the trial judge reduced Sunahara's damages in the UIM claim by 50 percent.

[ 40 By concluding that an insurer's claim file is not discoverable in a first-party UIM action, the majority's holding serves as tacit approval of State Farm's inconsistent positions and the resultant detriment to its own insured. My reading of Silva would deter an insurance company from taking such inconsistent positions. Under my reading, if an insurance company like State Farm were to take inconsistent positions as to culpability or damages in a first-party UIM action following an initial third-party personal injury claim, such information could be uncovered through discovery and then potentially placed in full view of the jury as a business record or an admission against interest. If an insurance company knows that it will have to disclose its claim file to its insured should the claim eventually proceed to UIM litigation, then the insurance company will have a substantial incentive to assess lability reasonably and to estimate damages in good faith from the outset. This provides the best result for both a defendant in the initial third-party action (who will not be unfairly subjected to the plaintiff's insurance company's trumped up claims) and an insured plaintiff in any subsequent first-party UIM action (who will not be subjected to her insurance company reversing course on its initial assessment in an effort to pay as little as possible in UIM benefits).

41 Ultimately, the ability to discover the claim file in a first-party UIM action would force an insurance company to place its duty to adjust its insured's claim in good faith above "the company's financial interests." Cf. maj. op. 128. I believe that this is the only result that is consistent with both our holding in Silva and the general principle that "[iln close cases, the balance must be struck in favor of allowing discovery." Direct Sales Tire Co. v. Dist. Court, 686 P.2d *6611316, 1321 (Colo.1984). Because, onee discovered, State Farm's claim file would likely be admissible at trial and might impact the jury's determination of comparative fault, I would remand this case for retrial on the issue of liability, in addition to the majority's remand on the issue of damages in accordance with its interpretation of the collateral source rule. Thus, I respectfully dissent from Part III of the majority's opinion.

Justice EID, concurring in part and dissenting in part.

T 42 Although I join Part III of the majority's opinion, I dissent from Part II for the reasons set forth in my dissent in Wal-Mart v. Crossgrove, 2012 CO 31, 276 P.3d 562. Unlike the majority, I would hold that the fact that a medical provider accepted an amount less (here, $14,000) than the amount billed (here, $50,000) as full payment is admissible because it is relevant to the reasonable value of medical services provided, and does not run afoul of the collateral source doctrine because the identity of who paid the medical provider (in this case, plaintiffs health insurer) is irrelevant. More importantly, however, I note that the majority exacerbates its erroneous legal conclusion in this case by ordering that a new trial be held on past economic damages where there is no possibility the plaintiff could recover on his uninsured motorist claim against his insurer, even under the majority's interpretation of the collateral source doctrine. That is because even if the full $50,000 in past economic damages requested by the plaintiff were added to the jury award, the tortfeasor's insurer has already paid the plaintiff more than what such an augmented award would have provided, leaving no uninsured loss. Accordingly, I respectfully dissent from Part II of the majority's opinion.

148 In his motion for additur or a new trial, the plaintiff argued that the district court had erred in permitting the jury to hear the fact that the medical providers accepted less than the amounts billed, and asked that the full amount billed, $50,000, be added to the verdict. In denying the motion, the district court held that, even if the plaintiff were correct that the jury should not have been permitted to hear that the providers accepted less than they billed, it would result in no overall increase in the damages awarded in the case. In an uninsured motorist case such as this one, a plaintiff can recover only if he proves that he has some loss that has not already been compensated by the tortfeasor. See § 10-4-609(5), (6), C.R.S. (2011); Sunahara v. State Farm Mut. Auto. Ins. Co., 2012 CO 30, ¶ 36 (Bender, C.J., concurring in part and dissenting in part). Here, the parties stipulated to the fact that the plaintiff had already received $100,000 from the tortfeasor's insurer; thus, the plaintiff would have to show that he suffered more than $100,000 in loss to sue-ceed on his uninsured motorist claim against his insurer. The district court reasoned that plaintiff could not make such a showing because even if the full $50,000 requested by the plaintiff in past economic damages were added to the verdict, the total jury award, after reduction for comparative negligence, would amount to approximately $80,000. In other words, the plaintiff would not be entitled to recover any amount of uninsured motorist coverage because his loss was already fully compensated.

I 44 The majority acknowledges a new trial should be ordered only where it has been demonstrated that "the error was prejudicial." Maj. op. 117. The majority asserts that there was prejudice in this case because plaintiff was awarded "$0 in past economic damages" even though there was evidence of "expensive medical treatment" as demonstrated by the medical bills. Id. at T 18. The majority goes on to conclude that the fact that the jury was aware that the medical providers accepted less than the amount billed "almost certainly led the jury to conclude that Sunahara sustained $0 in past economic damages...." Id. As noted above, however, even if the jury were to award the full amount the plaintiff sought for past economic damages-that is, the full amount billed-the outcome of the case would not change, as the plaintiff would still not recover on his uninsured motorist claim.

1 45 The majority gives no indication in its opinion that the district court erred in its determination that the collateral source issue *662makes no difference to the overall damage award in this case. And although it limits the new trial to past economic damages, maj. op. at 31, that new trial, even if so limited, is a waste of judicial resources.

T 46 Finally, I disagree with the majority's assertion, noted above, that because the jury knew plaintiff's medical providers accepted less than $50,000 in payment for the medical bills, it awarded no past economic damages. The majority does not consider an alternative explanation of the jury's award-namely, that the nature of the plaintiff's injuries was hotly contested at trial by both sides, including the fact that he had significant pre-exist-ing injuries to both of his shoulders and his lower back. Thus, while there may have been "uncontroverted evidence" that the plaintiff was billed $50,000 by his medical providers after the accident, maj. op. at 1 18, the evidence of what caused his injuries specifically, his pre-existing conditions or the accident-was strongly controverted. It was the jury's duty, not ours, to weigh the conflicting evidence and to decide the cause of plaintiff's injuries.

T47 Moreover, the district court, in its words, took "special steps to make sure the jury was not informed that these discounted payments were made by Plaintiffs health insurer." As in Crossgrove, 2012 CO 31, 276 P.3d 562 (Eid, J., dissenting), the jury here was never informed that plaintiff's insurer paid the medical providers. Further, the jury was specifically instructed that it was the "sole judge{ |" of the reasonable value of medical services provided to the plaintiff that were necessitated by the accident. Because the district court did not err in permitting the jury to hear the fact that the medical providers accepted less than what they billed as payment for their services, I respectfully dissent from Part II of the majority's opinion.

I am authorized to state that Justice COATS and Justice BOATRIGHT join in the concurrence in part and dissent in part.

. A third-party personal injury claim is a case in which an injured plaintiff sues an allegedly negligent defendant, who is covered by an insurance company that will pay out to the plaintiff if the defendant is found to have been liable. See Si/-va, 47 P.3d at 1193. In contrast, a first-party action is between an insured and her insurer and involves either an insured's allegation that her insurer adjusted a claim in bad faith or the insurer's request for a declaratory judgment that it is not responsible for its insured's claim. See id.

. I note that the letter that State Farm sent to Mallard's insurer claiming that Mallard was completely at fault for the accident should likely have been admissible at the underlying trial between Sunahara and State Farm, as a relevant statement against interest by a party opponent. CRE 801(d)(2)(A) ("A statement is not hearsay if ... (2) [the statement is offered against a party and is (A) the party's own statement. ..."). For unknown reasons (because the ruling of the trial judge was made off the record), this document was excluded from the trial as inadmissible. However, although Sunahara briefed this issue before us and it was arguably included within the second issue for which we granted certiorari, this issue was not properly raised before the court of appeals and thus was not preserved for our review. See Am. Family Mut. Ins. Co. v. DeWitt, 218 P.3d 318, 326 (Colo.2009) (reasoning that even if a proper objection is made at trial, failure to argue the issue before the court of appeals renders an issue unfit for appellate review by this court).