Insurer can challenge some issues in claims handling suit

In Colorado, a claim for a bad faith denial of benefits is considered to be separate and distinct from the underlying workers' compensation entitlement claim and therefore is not precluded. However, certain issues can be precluded in a subsequent proceeding.

Case name: Wright v. Liberty Mutual Fire Insurance Co., No. 06-cv-351-RJC-KLM (D. Colo. 10/30/09).

Ruling: The U.S. District Court, District of Colorado granted in part and denied in part the employee's motion to prohibit the carrier from re-litigating matters that were either decided by an administrative law judge or admitted by the carrier in a prior proceeding.

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What it means: In Colorado, a claim for a bad faith denial of benefits is considered to be separate and distinct from the underlying workers' compensation entitlement claim and therefore is not precluded. However, certain issues can be precluded in the subsequent proceeding if: 1) the issue is identical to an issue actually adjudicated in a prior proceeding; 2) the party against whom estoppel is asserted was a party in the prior proceeding; 3) there was a final judgment on the merits; and 4) the party against whom estoppel is being asserted had a full and fair opportunity to litigate the issue.

Summary: In a bad faith claim, an employee attempted to stop the carrier from raising issues that were litigated in his underlying workers' compensation entitlement suit. In particular, the employee argued the carrier should not be able to deny liability for his injuries or for certain benefits he received. The court disagreed, noting that the carrier did not intend to be bound by the admissions and did not have the same incentive to "vigorously defend itself" in the workers' compensation suit. The court noted that the carrier's previous incentive to defend was different because the compensability determinations were based on the examining physician's opinions and were difficult for the carrier to overcome. It also determined the employee's bad faith claim was separate and distinct from his workers' compensation claim because the two actions represented claims for different injuries. It granted in part and denied in part the employee's motion to preclude litigation of the issues.

The court found, however, that the carrier had a full and fair opportunity in the workers' compensation claim to conclusively litigate the employee's average weekly wage, attendance at a neuropsychological evaluation, and entitlement to benefits. Therefore, those issues were precluded.

The court pointed out that Colorado law requires that the claims be the same claim or cause of action that are "bounded" by the injury and not merely alleged to be the same because of a legal theory presented by one party. It noted that the jury would not be instructed to accept the facts as true unless the court determined they were relevant to the issues presented.

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December 17, 2009

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