Insurer not allowed to sue another carrier for improper cancellation of policy

In Colorado, an insurer does not have standing to sue another insurer for failing to properly cancel its policy with an employer.

Case name: First Comp Insurance v. Industrial Claim Appeals Office of the State of Colorado, No. 10CA0608 (Colo. Ct. App. 03/31/11).

Ruling: The Colorado Court of Appeals held that an employer's insurer could not sue alleging that another carrier failed to properly cancel its insurance and was responsible for benefits.

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What it means: In Colorado, an insurer does not have standing to sue another insurer for failing to properly cancel its policy with an employer.

Summary: A worker died in a work-related incident and the survivors sought workers' compensation benefits from the direct employer's insurer. At the time of the accident, the insurance had lapsed for a nonpayment of premium, so the insurer declined to pay for funeral expenses. The worker's survivors also sought coverage from the insurer for the statutory employer. The second insurer also denied coverage on the grounds that the first insurer had not properly canceled its policy and should be responsible for benefits. The Colorado Court of Appeals held that the second insurer lacked standing to sue regarding the insurance cancellation procedures.

State law requires that an insurer notify an employer it insures of any cancellation of the employer's coverage. A notice of cancellation for nonpayment of premium can be sent less than 30 days before the effective date of the cancellation. The second insurer argued that the first insurer failed to comply with the law's requirements. The court said the injury suffered by the second insurer was not a legally protected interest. The second insurer argued that the law was intended to protect the interests of employers who are potentially liable, as well as injured workers. The court said the second insurer was not an employer or an agent of the direct employer.

The court noted that a previous case held that an insurer that might be liable because of a lapse in another insurer's workers' compensation policy cannot challenge the other insurer's compliance with cancellation procedures.

Read more at the WorkersComp Forum homepage.

May 19, 2011

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